Remittances have been at an all-time high in the last couple of years. Experts predicted that by 2021, migrant workers will send home nearly $600 billion a year. However, the COVID-19 has changed all that. Instead of consistent growth remittances have shown the sharpest decline in recent history. Millions of migrant workers are now unable to send their money home. Cryptocurrency might offer a solution to that problem to prevent a recurrence of this situation.
State of remittances in the COVID-19 pandemic
Remittances are going down fast, which is a major problem for all remittance-dependent economies. There are quite a few of such economies as migrant workers are one of the main streams of income for economies in developing countries. Today, those workers are either trapped without an ability to send their money home or they were sent back to their home countries due to lockdown measures.
Local offices of Western Union and MoneyGram, money transfer companies most used by migrants, as well as banks are closed nearly all over the world. This means that even people who still have the money to send are unable to support their families. And their families wouldn’t be able to get that transfer anyway as they also can’t go to the local bank and make a withdrawal.
For many developing economies this situation could spell disaster. Countries such as India have already been hit badly. Remittances to India could be down by over 20% this year because of the pandemic. This country is the biggest receiver of remittances in the world and it was this money that helped India through the previous big economic recession. The situation in many developing countries is the same, especially in the Pacific Islands region.
A global recession seems inevitable now and experts predict that it’s going to be one of the worst in history. Because of the issues with remittances, developing countries would be in even more trouble.
Using a fully-digital money transfer method could prevent or at least reduce the tragedy caused by the cut-off flow of remittances. This is were cryptocurrency might come into play.
How crypto could solve the remittance problem
A way to transfer money to any part of the world instantly and using nothing but digital routes would help solve the problem of remissions. That’s why the widespread adoption of cryptocurrency could revolutionize this industry. As a result, economies so affected by the reduction in remittances would have fared much better in the upcoming crisis.
However, for all the promise of crypto, it’s not yet at the level where migrant workers can effectively use it to send money home. In fact, cryptocurrencies are still illegal and completely banned in many developing countries. Therefore, even those who have access to crypto in the countries where they work can’t benefit from it.
At the moment, the matter of regulation is the biggest obstacle preventing crypto from becoming equal to fiat currencies. However, as the current situation shows exactly how beneficial for economy digital money can be, legislation might change.
Crypto has already been showing signs of improvement in regards to its acceptance on the state level, Rippe (XRP) definitely helped this process along as this coin is much more adaptable and easier to use for vendors than even BTC.
Driven by necessity, legislators might give crypto more freedom thus giving businesses a chance to start using it in earnest.
On the other hand, the need for a solution like crypto has been there for a while. It’s true that the need is more pronounced at the moment. However, the problems that prevented crypto from replacing fiat money are still there. Popular Bitcoin entrepreneur Andreas M. Antonopoulos recently said that the idea that Bitcoin would replace national currencies is a fallacy.
Is the latest rise for crypto connected to remittances?
When the great coronavirus struct the global stock market, the crypto market was not spared, as it crashed right after stocks. This made many experts conclude that it’s not a good hedge. However, it recovered rather fast and has been gaining in value in recent weeks. One might assume that this is somehow connected to the problem of remittances.
The chances that migrant workers are making any big difference in the rising value of cryptocurrencies are slim. No doubt, some of the increased crypto transactions come from remittances. But that amount is rather small.
The main reason why crypto values are now on the rise is hedging. Many people out there believe coins to be a good hedge against inflation. As inflation is imminent along with the global recession, hedging has become essential for many.
Unfortunately, the single biggest crash in BTC value since 2013, which happened in March, proved that hedging with crypto is also risky. It’s still too volatile to offer any true protection from an economic downturn. The CEO of Binance explained that the reason for the high volatility is because the crypto industry still has a small market cap. Hopefully, as the market grows, we will begin to see some stability in prices.
Actually, the fact that crypto is mostly used as a hedge instead of currency is one of the main reasons for its volatility. Its decentralized nature and lack of regulation are other contributing factors.
Changes in legislation, which will allow crypto to be used as full-fledged currency, should help solve these issues.
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