Cryptocurrency may be losing the backing of celebrities around the world, but it appears to be gaining grounds in the developing world as more people in rich countries use it as the means of sending remittances back home.
Consequently, while Bitcoin, for instance, remains a hot investment for hedge funders and corporate moguls, it is also fast becoming a cost-effective way to transfer money throughout the developing world.
One of the countries where this phenomenon is most obvious is the West Africa countries of Nigeria, where the central bank is getting worried about Nigerians choosing cryptocurrencies over the naira for overseas remittance payments.
Naira-based international remittance inflows to Nigeria reportedly plummeted last year, as more Nigerians living abroad abandoned official banking channels by turning to cheaper cryptocurrency exchanges.
The move came on the heels of a nationwide crackdown on banks dealing in cryptocurrencies, which the government enacted in an attempt to counteract the naira’s declining value.
To reverse the trend, the central bank of Nigeria has reportedly launched a scheme to pay citizens abroad to use official channels for money transfers and abandon their obsession for cryptocurrencies like bitcoin.
Other emerging markets in a similar situation are in India, Latin America and Southeast Asia, where remittances make up a significant share of the economy.
Bitcoin transfers reportedly surged in emerging markets last year, as the pandemic accelerated the rise of cheaper, more efficient digital remittance services.
Reasons for Bitcoin surge in developing countries
For migrant workers who frequently send money across borders to support their families, the minimal transaction costs of cryptocurrency exchanges beat exorbitant transaction fees of traditional money wire companies like Western Union and MoneyGram.
International development institutions have always been worried about the dominance of Western Union and MoneyGram in the remittances market, particularly because of the high cost of their transfer services.
But cryptocurrency transactions are cheaper and faster than official currency transfers, which require working through banks reliant on SWIFT and interbank messaging system that handles cross-border payments.
Cryptocurrency exchanges also avoid the political complications of official channels. They have been used to skirt US sanctions to access international payments and financial markets, and by unofficial migrant workers who lack access to local banks.
The global reach of cryptocurrencies also avoids the inflation risk inherent to official currencies, especially in politically unstable countries reliant on fickle foreign investors
Meanwhile some central banks continue to fight back by scurrying to build out official digital currencies to compete with private cryptocurrency companies.
Some have resorted to placing bans on cryptocurrency to buy time, but that seem to be failing simply because in the digital age, blocking enterprising crypto investors from global markets does not work.
To make things even worse for the central banks, the crypto operators have simply moved to smaller peer-to-peer crypto exchanges.