Why Migrants Are Turning to Crypto: The Key to Attaining the UN Goal to Reduce Remittance Costs to Less Than 3% by 2030

The most recent World Bank (WB remittance data shows that Sub-Saharan Africa is once more the most costly region to send money to. The average cost for sending $200 to the region was 7.8%. This is 0.4% less than the 2020 figure.

Nigeria, which is responsible for the majority of the region’s remittances saw its inflows rise by 11.2 percent. The WB says that Nigeria’s policy of encouraging recipients to cash out on regulated platforms can explain the increase in the value and volume of remittances to Nigeria through formal channels. Other countries in the region saw significant increases in their inflows are Gambia (31%), Cabo Verde (23%), and Kenya (20.1%).

Globally, the average cost to send money across borders was 6% for the same period. The World Bank reports that both Sub-Saharan Africa as well as the global average transacting cost are much higher than the Sustainable Development Goal 10.3 target of below 3%.

Despite the efforts to reduce this number, it remains very high, and has remained so for many years. It is therefore unlikely that the United Nations SDG10.3 goal to reduce the transaction costs for migrant remittances by 3% by 2030 will be realized. The UN’s goal of eliminating remittance routes with costs greater than 5 percent seems impossible.

Why are Migrants Turning to Crypto

The high cost of sending money via formal channels, as well as the strict KYC standards that are often applied to them, force migrants to find more convenient and easier ways to send money. Some of the informal methods migrants use to send money to loved ones include couriers, cross-border truck drivers, and bus drivers. These informal methods come with their own problems, the most important being the security of funds.

Although cryptocurrencies weren’t initially designed to solve this problem, the growing use of cryptocurrencies by migrants to send money to loved ones proves that they can. The 2021 Geography of Cryptocurrency report from Chainalysis, which is a blockchain intelligence firm, will show that a growing number of African migrants could be using peer to peer crypto exchange platforms for sending money back home.

The data from the intelligence company suggests that $105.6 billion worth cryptocurrency was sent to African recipients between July 2020 – June 2021. Nearly 96% of these totals were cross-regional transfers.

Another metric in the report is the number of incoming transfer that are less than $1,000. This supports the claim that African migrants use digital currencies to send money home. Chainalysis reports that the number of such transfers surpassed the 200,000 mark in May 2020 for the first time and has remained above this level ever since. In fact, just 800,000. were transferred below $1,000 in May 2021.

Not only are cryptocurrencies faster and more secure than traditional channels, but they also cost less. It may cost up to $10 to send $100 from South Africa into Zimbabwe using regular corridors. However, sending $200 via the BC network costs $0.01 or less than one percent. Transferring the same amount on the Stellar network costs less than one cent. These two examples are just two of many that show that cryptocurrencies offer a better alternative than regular remittances channels.

Functional Innovation must not be curtailed by regulators

While critics, especially those from advanced economies, are quick to point out the shortcomings of cryptocurrency, many migrants not only from Africa, but from all over the world are showing that cryptos can be more reliable than traditional channels. If cryptocurrency were to suddenly become the most widely used method of transferring funds between different jurisdictions, then it would be possible to achieve the SDG 10.3 goal that remittance costs below three percent well before 2030.

When dealing with cryptocurrency, regulators must be guided by facts and not misinformation. The regulation of cryptocurrency should not be about limiting their use, as the United Nations Conference on Trade and Development suggested in a policy brief.

Instead, regulators should encourage or promote the increased use cryptocurrency where it is being used. It is important to protect and encourage innovations that empower the poor or attempt to level the playing fields.

Rate this post

Comments are Disabled