Many more migrant workers are increasingly relying on money-transfer companies that utilize cryptocurrencies to move cash across borders while central banks on the African continent battle to prevent cryptocurrencies from becoming mainstream on the continent.
Consequently, in addition to being a “hot investment for hedge fund managers and corporate executives,” crypto-assets such as bitcoin are now seen as “a cost-effective method to move money across the developing world,” according to Bloomberg. Lockdown measures, which will be implemented in a number of nations beginning in March 2020, will also contribute to the increasing popularity of cryptocurrencies.
The development of Covid-19 was slowed by the imposition of travel restrictions by governments all over the globe. This made the usually dependable money transfer routes less available, as a result. Because of the severe restrictions on mobility, bitcoin and other cryptocurrencies have inevitably emerged as the most secure and cost-effective method of moving money across international boundaries in the near future.
As a result of the cryptocurrency boom that began in March 2020, many research have been conducted. Since then, several central banks have attempted to rein in the increasing popularity of the currency. For example, prior to the Nigerian Central Bank (CBN) issuing an order prohibiting banks from providing services to cryptocurrency clients, remittances entering the nation through cryptocurrencies had been increasing dramatically. The official statistics, on the other hand, indicates that remittances via traditional methods have plummeted to historic lows.
According to several crypto aficionados residing in Nigeria, it was this decline (in remittances) that prompted the Central Bank of Nigeria (CBN) to take action against the cryptocurrency sector. Additionally, the Central Bank of Nigeria’s newly announced incentive program for Nigerians who receive remittances via official channels is another effort to stop the ongoing decline in cross-border remittance inflows.
Cryptocurrencies and the Sustainable Development Goals (SDGs)
According to the Quartz Africa article, it is precisely these “minimum crypto transaction costs” that allow cryptocurrencies to “defeat hefty transaction fees charged by conventional money wire providers such as Western Union and Moneygram.” Furthermore, according to a report published by Bitcoin.com News in October 2020, a World Bank research showed that Sub-Saharan Africa was the most costly area in the world, with an average sending cost of 8.47 percent in the third quarter of 2020. This number is much higher than the 3 percent goal set by the United Nations Sustainable Development Goal (SDG) 10C.
A study from Chainalysis 2020 on the Geography of Cryptocurrency, on the other hand, shows that many African expatriates are, in fact, using cryptocurrencies to transfer money back to their home countries. As revealed in the study, about $562 million in cryptocurrencies was moved directly from foreign addresses to African locations in the form of small payments.
“While it acknowledges that this number ($562 million) is unlikely to reflect remittances from all expats,” the blockchain research company nevertheless believes that many migrants are selecting cryptocurrency because of the “low-fee remittances,” according to the study. The study provides an example of this by stating that “for certain country pairings that experience significant remittance flows, such as South Africa to Nigeria or South Africa to Malawi, the costs may be as high as 15 percent.”
Cryptocurrencies have the lowest remittance fees available.
However, as the data from Bitinfocharts demonstrates, the network fees (or transaction costs) associated with certain cryptocurrencies such as bitcoin cash (BCH), XRP, and XlM are a very small fraction of a dollar. The Bitcoin Cash network, for example, realized an average charge of $0.0032 per transaction on March 29, based on the 360,000 or so transactions that were logged on that day on the network. According to the statistics, the average dollar amount of each of these transactions was $15,020 per transaction.
‘Low-Fee Remittances’ are becoming more popular among African migrants, who are turning to cryptocurrency platforms for help.
Other cryptocurrencies, such as XRP, dash, and stellar, all have network costs that are much lower than the 3 percent goal set by the United Nations. If central banks and financial institutions do not cooperate together to reduce remittance costs, the usage of cryptocurrencies for international money transfers will continue to rise in the future. When there is no other option, just prohibiting or trying to eliminate cryptocurrencies will not be effective.