Crypto: New lifeline for remittance-dependent nations

October 03, 2024 (MLN): Workers’ remittances are one of the major sources of foreign exchange earnings for many developing countries and are a lifeline for their development.

However, traditional money transfer methods—such as Western Union or MoneyGram—often come with hefty fees and lengthy processing times, with transfers taking up to three business days to complete. That makes cryptocurrency an attractive alternative.

Cryptocurrency transactions, even across borders, typically take only a few minutes and incur a fraction of the fees compared to these methods.

Recent data from blockchain analysis firm Chainalysis highlights that the Middle East and North Africa (MENA) region has experienced explosive growth in crypto transactions, with transfers into the region amounting to $339 billion between July 2023 and June 2024.

The use of crypto for remittance payments and savings, along with increasingly permissive regulations, is helping to drive growth in the region, Chainalysis noted.

According to Chainalysis’ 2024 Global Crypto Adoption Index, India, Nigeria, and Indonesia has taken the top three spots worldwide in the adoption of crypto, and, interestingly, but perhaps not unexpectedly, Pakistan is ninth on the list—despite its legal status.

Many Nigerians rely on stablecoins—a cryptocurrency such as USDT whose value is pegged to the US Dollar—to send money across borders due to the inefficiencies and high costs associated with traditional remittance channels.

While in Pakistan, this suggests that many of its dollars are likely being diverted to various informal channels, including cryptocurrency.

To note, stablecoins differ from cryptocurrencies like Bitcoin as they strive to provide an alternative to the high volatility of popular cryptocurrencies, making them potentially more suitable for everyday transactions.

“Cross-border remittances are a major use case for stablecoins in Nigeria,” said Moyo Sodipo, COO and Co-founder of Busha, a crypto exchange with a presence in Nigeria. “It’s much faster and more affordable.”

The average cost of sending a $200 remittance from Sub-Saharan Africa is approximately 60% lower when using stablecoins compared to traditional remittance methods facilitated by fiat currency.

Rob Downes, Head of Digital Assets at ABSA Bank, pointed to the growing use of stablecoins for remittances and international payments. “We see stablecoins as a game-changer,” he said.

For individuals sending money to family members abroad or paying for expenses, stablecoins provide a faster, more affordable alternative to traditional remittance services.

Another notable example is Venezuela, which, much like Pakistan, is recovering from one of the most dire economic crises in its history. However, unlike Pakistan, which lags in technology adoption, more families in Venezuela are turning to cryptocurrency as a lifeline.

Within the last decade, Venezuela has become one of the primary remittance-dependent nations in South America, according to Bloomberg.

After the skyrocketing migration crisis the country has faced, about 30% of Venezuelan households began receiving remittances, according to a study by the Inter-American Dialogue.

The amount transmitted via crypto likely reached a record 9% of all the money sent home last year, according to data from Chainalysis.

Last year, Venezuelans received more than $5.4bn in remittances, a growth of 29% from the previous year. Over $461 million of the remittances in 2023 were made through cryptocurrencies. Remittance inflow growth in Pakistan was 11% in the fiscal year 2023-24.

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