As the popularity of cryptocurrencies spreads across the world, developing nations have been some of the most enthusiastic adopters of this new asset class.
While in developed countries, where stable national currencies, strong property laws and a reliable banking system have made people view cryptocurrencies as risk-on assets, the opposite is proving to be true for people in countries suffering from high inflation, political instability and endemic corruption.
As with everything, perspective and place influences perception. And for many people living in politically unstable countries or dealing with rapidly devaluing national currencies, cryptocurrencies are solving real-life problems.
Key takeaways:
- Many of the world’s 1.7 billion unbanked people are turning to crypto. (1)
- The remittance market is a hotbed for crypto adoption. (1)
- Cryptocurrencies are a legitimate inflation hedge for countries with unstable national currencies.
Cryptocurrencies are offering solutions to the world’s unbanked
There are 1.7 billion people considered unbanked in the world. In places like Latin America, only 30% of people over 15 years old have access to a bank account. (1) In Southeast Asian countries like Vietnam, where large swathes of the population live in impoverished rural areas, the percentage of unbanked individuals goes up to 70%. (2)
These communities are living in areas where it is not economically enticing enough for banks to set up shop. Consequently, the people who are often in need of financial services the most—whether that be micro loans, earning interest on savings or investing—are often left out in the cold.
"75% of investors in emerging markets want more crypto." – Cointelegraph
Cryptocurrencies have been providing real solutions to the problems that come with being unbanked. All you need is a smart phone and data plan to get plugged into burgeoning ecosystem of crypto financial products.
Remittances are being revolutionized by crypto
One of the most notable examples is in the area of remittances. Countries like Vietnam, Nigeria and El Salvador heavily rely on remittances from their diasporas to prop up their GDP. But transfers back home are mired in high fees, administrative costs and unclear exchange rates. Not having bank accounts exacerbates these issues by forcing a reliance on money transfer services that offer unfavourable terms. (2)
In Nigeria, where remittance fees can be significantly higher than in other parts of the world, the desire for peer-to-peer transfers has been a large reason for the 128% spike in cryptocurrency use in 2021. (3)
El Salvador is another good example. It launched its Chivo App last year to help facilitate the nation’s transition to using Bitcoin as legal tender. The app and launch were far from perfect, but what could not be argued is that it gave many Salvadorans a means by which to transfer wealth quickly and cheaply across international borders. (4)
Its impact on the unbanked of the country was also significant. In 2017, only 29% of the country had a bank account. A few short months after its launch, however, Chivo App was being used by 4 million of the 6.5 million people of El Salvador. (4)(5)
Afghanistan, though, is probably the most poignant reference for how this story is playing out. Western sanctions against the Taliban government have led to money transfer companies, such as Western Union and MoneyGram, pulling out of the country. With 4% of its GDP coming from remittances and no way for family members to get money back into the country, Afghans have flocked en masse to crypto to address this lack of service. In 2021, Afghanistan ranked 20th out of 154 countries in crypto adoption. In 2020, they were not even on the list. (6)
Cryptocurrency as an inflation hedge
Cryptocurrency advocates, especially those of Bitcoin, often tout the importance of holding these assets as a hedge against inflation. The thinking goes that investing into a digital currency that has a limited supply, and that is not influenced by central bank policy, can offset the reduction in purchasing power that happens when governments print money.
When viewed from the perspective of people living in developed countries, though, this thesis hasn’t exactly played out. Even amidst soaring inflation levels that haven’t been seen for more than four decades, the Canadian or U.S. dollar have not devalued as much as Bitcoin over the last year. In 2021, Bitcoin had six dips of between 14% to 26% and two major corrections of 31% and 35%. (7)
Again, so much of this viewpoint is coloured by the privilege of living and doing business in stable, democratic countries with strong economies. The reality is that the majority of people do not live in these types of nations.
As the chart below outlines, Turkey, Lebanon, Venezuela, Zimbabwe, Nigeria and Argentina have all experienced either high inflation or hyperinflation recently. These are just the most well-documented cases of national currencies gone awry, but there are other examples.
A notable and measurable response to these serious currency devaluations has been a large uptick in crypto usage in these countries.
In Lebanon, where the central bank ran what was effectively a state-sponsored Ponzi scheme, ordinary Lebanese saw the cash in their bank accounts devalue by 60% overnight in 2019. (8) In the wake of the economic meltdown, peer-to-peer transactions in stablecoins skyrocketed among users in the country, signalling both a desire to circumnavigate the traditional and untrustworthy banking system and to find a means by which to store value. (9)
A similar story has unfolded in Turkey, where President Erdogan’s refusal to increase interest rates saw the Turkish lira plummet by 44% in 2021. (10) Consequently, Turks have moved increasingly to the “cryptolization” of their money, which they view as a safer means by which to hold onto their wealth. (11)
In Venezuela, its 686% inflation rate in 2021 (12) was only outdone by the 833% increase in crypto trading volume in that country that same year. (13)
It’s clear that in countries facing large inflationary pressures, cryptocurrencies are seen as a valid way to store value and have prevented millions from losing everything.
The bottom line
Cryptocurrencies and their underlying technologies are often seen by people in developed countries as speculative assets. And it is true that they have not proven their mettle as an inflation hedge in the context of strong, stable economies. However, in nations facing frequent currency devaluations, political unrest, lack of access to banking services and corrupt governments, digital assets and blockchain technology are offering real solutions for everyday people.
–Haan Palcu-Chang, Crypto Content Specialist
Sources
- “Cryptocurrencies Are Taking The Developing World By Storm,” Business Insider: https://markets.businessinsider.com/news/cryptocurrencies/cryptocurrencies-are-taking-the-developing-world-and-nigeria-by-storm-2021-7
- “Vietnam Ranks #1 Globally For Cryptocurrency Adoption,” Vietnam Daily: https://vietnamdaily.ca/culture/vietnam-ranks-1-globally-for-cryptocurrency-adoption/#reason
- “Cryptocurrencies Are Taking the Developing World By Storm,” Business Insider: https://markets.businessinsider.com/news/cryptocurrencies/cryptocurrencies-are-taking-the-developing-world-and-nigeria-by-storm-2021-7
- “El Salvador Turns to US Bitcoin Wallet to Revamp Chivo,” Blockworks:https://blockworks.co/el-salvador-taps-us-bitcoin-wallet/
- “Share of Adult Population With A Bank or Mobile Money Service Account In El Salvador Between 2011 and 2017,” Statista: https://www.statista.com/statistics/1011424/el-salvador-bank-account-ownership-rate-type/
- “Crypto Remittances Are a Lifeline For The World’s Most Vulnerable,” Tech Crunch: https://techcrunch.com/2021/10/09/crypto-remittances-are-a-lifeline-for-the-worlds-most-vulnerable/
- “Bitcoin 2021 Dips and Corrections: In Retrospect,” Yahoo Finance: https://finance.yahoo.com/news/bitcoin-2021-dips-corrections-retrospect-115943091.html
- “How Lebanon’s Economy Imploded,” WSJ Podcasts: https://www.wsj.com/podcasts/the-journal/how-lebanon-economy-imploded/33523860-e250-42ea-8aca-2d207bf2e9e5
- “Young Lebanese Driving Crypto ‘Revolution' After Banks Go Bust,” Reuters: https://www.reuters.com/article/lebanon-crypto-currency-youth-idUSL8N2QH1MW
- “Erdogan Blames Turkey’s Currency Problems On ‘Foreign Financial Tools’ As Central Bank Reserves Fall,” CNBC: https://www.cnbc.com/2022/01/13/erdogan-blames-turkeys-currency-woes-on-foreign-financial-tools-as-central-bank-reserves-fall.html#
- “Crypto Investing is Alive and Well in Turkey Thanks to Lira Woes,” Al Jazeera: https://www.aljazeera.com/economy/2022/1/17/crypto-investing-is-alive-and-well-in-turkey-thanks-to-lira-woes
- “Venezuela's Inflation Hit 686% in 2021 Says Central Bank,” Economic Times: https://economictimes.indiatimes.com/news/international/business/venezuelas-inflation-hit-686-4-in-2021-says-central-bank/articleshow/88780741.cms?from=mdr
- “Cryptocurrencies Are Taking the Developing World By Storm,” Business Insider: https://markets.businessinsider.com/news/cryptocurrencies/cryptocurrencies-are-taking-the-developing-world-and-nigeria-by-storm-2021-7
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