Cryptocurrency, Stablecoins and Blockchain: Exploring Digital Money Solutions for Remittances and Inclusive Economies

Abstract

For sizable populations in low- and middle-income countries (LMICs), remittances from abroad form significant portion of their income. The remittances are monies sent to them by their close relatives or friends who work as migrant workers in high income countries. The total remittance amounts have been steadily growing over the last several decades to hundreds of billions of dollars as of 2019 (World Bank). For some low-income countries, these funds account for as much as 10 to 15% of their annual GDP. As important as this source of income is for those living in LMICs, the transfer of money may involve untrusted third parties that charge hefty fees to facilitate such transfers. These fees can be anywhere from 5% to 10% of the total funds per transaction. Even if majority of these transactions occur without any problems, there is always possibility of fraud and theft resulting in loss of income for those who depend on such funds. The use of cryptocurrencies and blockchain technologies is an alternative to money transfers. Use of these technologies eliminate need for untrusted third parties in funds transfer operations. With increasing penetration of mobile phone technologies all, even those who may be “unbanked” are likely to have access to mobile phones. In such case, cryptocurrency/blockchain technology can be utilized for funds transfer to their mobile devices.

There are at least two well-known cryptocurrency companies (Ripple and Stellar) that help in near instantaneous digital funds transfer for a tiny fraction of fees charged by banking industry and other money transfer operators; although their global reach is limited to high-income countries. What is needed in the LMIC case is an entity that has global appeal and reach.

The recent announcement of a new cryptocurrency called “Libra” by Facebook may be one such candidate; given that Facebook has a vast social network spanning the entire globe with nearly 2.5 billion active users. That could help its cryptocurrency Libra as medium of exchange and cross-border funds transfer.

In this paper we consider remittance operations with and without cryptocurrency and blockchain technologies in general and present pros and cons of Libra for cross-border payments and money transfers. We also present a brief discussion on challenges posed by global cryptocurrencies to central bank governing bodies all over the world and policy implications arising out of potential conflicts between sovereign currencies and future of global cryptocurrencies such as Libra.

Keywords: Cryptocurrency, Blockchain, Stablecoin, Libra, Remittance, Inclusive Economy, Bitcoin