Global adoption of cryptocurrency has soared in recent years, and while it’s often considered an asset, it is seeing increasing use as a remittance option – despite ongoing regulatory challenges.
Most recently, MoneyGram, who previously partnered with Ripple, announced a new partnership with rival Stellar using Circle’s stablecoin USDC, making it the latest to incorporate cryptocurrency into money transfers. However, others have also launched their own products in the space.
Cryptocurrency at a national level: Mixed receptions
On a national level there are concerns, including those related to money laundering and wider regulation, but there is also enthusiasm, prompting highly varied responses.
El Salvador, for example, made Bitcoin legal tender in June 2021 with the launch of the government-backed crypto wallet Chivo. However, this sparked national protests, with many raising concerns over the currency’s volatility.
Meanwhile in September 2021 China’s regulators announced a ban on all crypto-related transactions – a reaction many have attributed to concerns over loss of control of the financial system.
Another approach that may ultimately benefit remittances is the adoption of central bank digital currencies (CBDCs), which maintain centralised control and the currency’s financial stability, while offering the potential to speed up international money transfers.
Current trials include China’s digital renminbi, Nigeria’s eNira and Sweden’s e-krona, although these remain years away from widespread interoperable use.
Cryptocurrency is disrupting the remittance industry
The borderless nature of cryptocurrency makes it an attractive medium for international remittances, however, particularly for markets where receiving payments through a bank account remains a challenge.
While there is little data on crypto remittance usage, a global survey by Statista found that the top countries in terms of percentages of the population who had owned or used cryptocurrency were Nigeria, Vietnam and the Philippines – three of the leading receive countries in remittances.
Crypto transactions offer benefits over some traditional remittances, allowing 24/7 access and near-instant speeds, as well as increased access for people living in remote areas or where financial sanctions apply. We also are seeing widespread automatic claims of crypto-based remittances always being cheaper or faster than traditional remittances, but our data does not support this wholesale claim.
However, the leading cryptocurrency, Bitcoin, is also ten times more volatile than major fiat currencies, exposing migrants to high risks of financial loss (one of the reasons stablecoins are increasing in popularity).
Furthermore, there are issues with interoperability between different crypto wallets, as well as a need for relatively high technical understanding to implement digital currencies.
Challenges and opportunities ahead
We are only scratching the surface when it comes to using crypto for remittances. Experimenting at a small scale and understanding what works for each market will be key to successful cryptocurrency endeavours.
Interoperability (in particular in terms of crypto wallets) will be crucial for transactions to happen at scale in the highly fragmented cryptocurrency sector. Educating the user about the risks and benefits of crypto will also be important, as will adopting a collaborative approach to specific regulations in each country.
Finally, stablecoins (cryptocurrency that are pegged to fiat currencies such as the US dollar) could help remedy the price volatility of cryptocurrencies.
Watch this space. There will be plenty more developments in cryptocurrency’s use for remittances, but don’t expect any widespread disruption of the status quo yet.