Since their introduction in 2009, cryptocurrencies have often been looked at as investments, not as potential alternatives to fiat currencies. In the past few years, this attitude has radically switched as El Salvador made Bitcoin legal tender and countries around the world are experimenting with a potential Central Bank Digital Currency (CBDC). One of the benefits of cryptocurrencies is their ability to be used as remittances, however, research from FXC Intelligence has found ten biggest recipient countries have bans or significant restrictions on cryptocurrencies.
This means remittance services, like those offered by Facebook, without major regulatory changes, won’t be able to capitalise on this market potential.
Often taking the form of money transfers sent by migrants to loved ones in their home countries, remittances are a major global industry, with remittance flows to low and middle-income countries topping $540billion in 2020 alone, according to the World Bank, while reducing the cost of remittances is one of the UN’s Sustainable Development Goals.
Increasingly, cryptocurrency has been proposed as a means to increase the speed and reduce the cost of remittances, with both established and new players entering the space. In 2021, Facebook launched its highly anticipated Novi remittances product, which enables users to send money using a stablecoin backed by the US Dollar, and which is currently being trialled on the US-Guatemala corridor. Established remittances player MoneyGram, meanwhile, launched a pilot with Stellar to send money using the stablecoin USDC in October, and this month bought a stake in cryptocurrency cash exchange Coinme. The country of El Salvador also adopted Bitcoin as legal tender in 2021.
However, the regulatory environment for digital assets remains ambiguous. According to a study by FXC Intelligence, half of the top ten remittance sending markets have developed crypto-friendly regulations, including the US, Germany and the UAE, while 30 per cent take a neutral stance. Just two of the top ten sending markets for remittances, China and Russia, have taken an anti-crypto stance.
In contrast, the central banks of 60 per cent of the top ten remittance-receiving countries have released warnings about cryptocurrency, with Turkey, Mexico, India and China issuing bans or restrictions in 2021, following in the footsteps of Bangladesh, Vietnam and Egypt. In these markets, cryptocurrency continues to be viewed as linked to criminal activity or a threat to government-imposed capital controls, largely due to the absence of regulation and central oversight.
“Cryptocurrency has fast become one of the most widespread buzzwords in cross-border payments, with proponents claiming that it can increase speeds and reduce costs compared to other remittance solutions. However, in reality this is not always the case, and our latest research suggests that the overall market will remain severely limited unless key receiving countries enact significant regulatory changes. Crypto definitely has potential to be part of the overall money transfer mix, but don’t expect it to become the sole approach to global payments.” – Daniel Webber, CEO, FXC Intelligence.