Cryptocurrency continues to rise in popularity all over the world despite the hesitance of many — due to its volatile nature, lack of regulation and trust in the system, or simply because they don’t know a lot about how it works. Some may argue that cryptocurrency can have a negative impact on the global economy, especially in developing countries. While others will argue that cryptocurrency allows for a more democratic way of handling money, leading to greater financial inclusion of many especially for those in emerging markets.
Just like other kinds of technology, cryptocurrency continues to evolve and comes with infinite possibilities. With this we can be certain that our financial systems will never be the same again.
Alternative Currency for Emerging Markets and Empowering the Unbanked
While more advanced economies view cryptocurrencies with suspicion, there are signs that crypto is building deeper roots in the developing world, especially in countries with a history of financial instability or countries where barriers to accessing traditional financial products are high. Transactions via cryptocurrency vary in size, from investors buying small amounts for under $100, to merchants settling invoices, to financial services built on these platforms and employing people.
Cryptocurrency has allowed the everyday entrepreneur from these emerging markets to get into small-scale international trade without having to shell out a massive amount of money and needing to open a merchant account in a formal bank. It has also allowed citizens from these emerging markets such as those in Africa, South America, and some parts of Asia to have the agency to invest in different kinds of cryptocurrencies and have become comfortable experimenting and switching between them for specific uses.
Cryptocurrencies have also made transferring money between borders easier and more affordable. With shorter turnaround times and lower transaction rates, it has become an alternative to traditional remittances, which is the bread and butter of many in these emerging markets. These traditional remittances usually have high transaction fees that take a sizable chunk of what very little they have.
Now, there are also more opportunities to earn through cryptocurrency in these emerging markets. Cryptocurrencies have also assisted firms and individuals to gain access to jobs in the global market especially if they are looking to expand their consumer base. It has been used by clients to pay their partners through cryptocurrency even if they don’t have a bank account with an international identification number.
Another is with the continuous growth of Play-To-Earn gaming, with games such as Axie Infinity, entering screens in many emerging markets. These can help supplement their current income streams or even become a new career path altogether, assisting people in these nations to escape poverty.
The continuous and rapid evolution of technology also comes with a lot of pain points, especially in converting cryptocurrency into local fiat currencies, which is where companies like XLD Finance come in with their products and services that aim to alleviate these pain points and become a safe and convenient gateway for the everyman who wants to transition between the world of cryptocurrency and real world finance.
El Salvador recently became the first country in the world to adopt the world’s largest cryptocurrency, Bitcoin, as legal tender along with the US Dollar in mid-2021. And in just a few months, Bitcoin can now be found everywhere in El Salvador, being used for just about anything. The country now even has their own digital wallet that about a third of the country uses — a bank account where people can save, invest, loan, and carry out their daily transactions.
This move to use cryptocurrency as legal tender in El Salvador has been met with much criticism but it has empowered unbanked Salvadorians, making up about 70% of their population, giving them access to real-world financial services they would otherwise not have had access to. This, along with the emergence of Central Bank Digital Currencies (CBDCs), other countries in emerging markets are contemplating to follow suit.
Because now all they need to transact with cryptocurrency is access to the internet. With the increase in internet usage all over the world, it has led to greater financial inclusion for the unbanked, especially in emerging markets all over the world.
Future of Cryptocurrencies for Emerging Markets
Overall, we can see that cryptocurrencies have a considerable impact in these emerging markets with the increase in financial inclusion of companies and individuals. Specifically in improving cross-border payments through the reduction of transaction fees and time. We can also see the same benefits in remittance payments and small-scale international trade. There is also an opportunity for new income streams to help alleviate poverty for citizens in these markets.
However, maximizing these benefits highly depend on the mass adoption of cryptocurrencies and its price stability. Currently, the ways how cryptocurrencies support the growth process of emerging markets is limited. It still heavily depends on the regulations that will be introduced in these markets that can lead to price stability and wider adoption of cryptocurrencies. But with the continuous evolution and infinite possibilities of this technology, we can be certain that our financial systems will never be the same again.
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