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

66th Annual North American Meetings of the Regional Science Association International (13–16 Nov, 2019) in Pittsburgh, PA, USA.

25 Pages Posted: 31 Dec 2019 Last revised: 28 Jan 2020

See all articles by Rajendra Kulkarni

Rajendra Kulkarni

Schar School of Policy & Government

Laurie Schintler

George Mason University - School of Policy, Government, and International Affairs

Naoru Koizumi

Schar School of Policy and Government

Jim Olds

Schar School, GMU

Roger R. Stough

George Mason University - School of Policy, Government, and International Affairs

Date Written: December 29, 2019

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

Suggested Citation

Kulkarni, Rajendra and Schintler, Laurie and Koizumi, Naoru and Olds, James and Stough, Roger R., Cryptocurrency, Stablecoins and Blockchain: Exploring Digital Money Solutions for Remittances and Inclusive Economies (December 29, 2019). 66th Annual North American Meetings of the Regional Science Association International (13–16 Nov, 2019) in Pittsburgh, PA, USA. , Available at SSRN: https://ssrn.com/abstract=3511139 or http://dx.doi.org/10.2139/ssrn.3511139

Rajendra Kulkarni (Contact Author)

Schar School of Policy & Government ( email )

Founders Hall
3351 Fairfax Dr.
Arlington, VA 22201
United States

Laurie Schintler

George Mason University - School of Policy, Government, and International Affairs ( email )

Founders Hall
3351 Fairfax Dr.
Arlington, VA 22201
United States

Naoru Koizumi

Schar School of Policy and Government

Founders Hall, Fifth Floor
3351 Fairfax Drive, MS 3B1
Arlington, VA 22201
United States

James Olds

Schar School, GMU ( email )

Founders Hall, Fifth Floor
3351 Fairfax Drive, MS 3B1
Arlington, VA 22201
United States

Roger R. Stough

George Mason University - School of Policy, Government, and International Affairs ( email )

Founders Hall
3351 Fairfax Dr.
Arlington, VA 22201
United States
703-993-2268 (Phone)
703-993-5027 (Fax)

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