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According to the most recent World Bank data, the cost that African migrants or expatriates experience when moving money through the so-called formal corridors is still far higher than the UN aim of less than 3%. However, when cryptocurrencies are utilized, the cost is significantly lower than the aim.
Global Average Exceeds SDG Goal
The most costly location to transfer money to is once again Sub-Saharan Africa, according to the most recent World Bank (WB) remittance data.
The area received $49 billion in remittances in 2021, only 0.4 percent more than in 2020, with an average cost of 7.8 percent for every $200 sent.
Remittances into Nigeria, which make up the majority of those sent to the area, increased by 11.2 percent. The World Bank claims that the regulations of the nation, which encourage receivers to cash out at regulated venues, are to blame for the increase in the value of remittances made to Nigeria through official channels. Other nations in the area that had considerable rise in remittance inflows include Cabo Verde, Gambia, and Kenya. Cabo Verde’s inbound remittances increased by 23.3 percent (20.1 percent ).
During the same time period, the average cost of sending money across borders was 6 percent worldwide.
The Sustainable Development Goal (SDG) 10.3 target of less than three percent is still substantially higher than both Sub-Saharan Africa and the world average transaction costs, according to the World Bank.
However, despite continual efforts to reduce this number, the price of transferring money across borders is still high and has been for years. This suggests that it is doubtful that the SDG 10.3 objective of bringing down migrant remittance transaction costs to under 3 percent by 2030 would be met. Similar to this, it seems impossible for the UN to eliminate remittance corridors with fees greater than 5%.
Why Refugees Are Using Crypto
Meanwhile, the exorbitant expense of sending remittances through official channels and the strict KYC requirements that go along with it frequently drive migrants to search for more practical and less time-consuming alternatives. One of the less formal means used by migrants to send money to their loved ones is through couriers, cross-border trucks, or bus drivers. The fundamental issue with such informal techniques is the protection of the cash, but they also present their own difficulties.
Since migrants are increasingly using cryptocurrencies to send money to their loved ones, even if they were not initially designed to address this issue, it is clear that they may contribute to finding a solution.
Peer-to-peer cryptocurrency exchange platforms may now be used by an increasing number of African migrants to send money back home, as the 2021 Geography of Cryptocurrency research by the blockchain intelligence company Chainalysis will confirm. To provide an example, the data from the intelligence agency reveals that $105.6 billion worth of cryptocurrencies were transmitted to individuals on the African continent between July 2020 and June 2021. Nearly 96 percent of this amount was made up of transfers across regions.
The other parameter used in the study supports the claim that African migrants are adopting digital currencies to send money by showing how many inbound transfers are under $1,000. According to Chainalysis, the quantity of these transactions first surpassed 200,000 in May 2020 and has continued to do so ever since. In reality, there were slightly under 800,000 transactions under $1,000 as of May 2021. When compared to the so-called formal channels, cryptocurrencies are visibly lot less expensive in addition to being a quicker and maybe more secure method of delivering money. When utilizing normal corridors, it may cost up to $10 (10%) to transmit $100 from South Africa to Zimbabwe; however, using the BCH network, it would only cost about $0.01, or less than 1%. On the Stellar network, the same value may be transferred for considerably less than a penny.
In addition to these two instances, there are plenty others that demonstrate how cryptocurrencies may be a superior substitute for conventional remittance routes.
Regulators cannot limit the application of functional innovation
As a result, although detractors, especially those from advanced nations, are keen to point out the drawbacks of cryptocurrencies, immigrants from all over the world, not just from Africa, are demonstrating that they are superior to conventional methods. The SDG 10.3 target of attaining remittance costs less than three percent might be achieved far before the 2030 deadline if cryptocurrency were to overnight become the most popular method of moving money between various countries.
It follows that when dealing with cryptocurrencies, regulators should be more motivated by facts than by malice. According to a new policy paper from the United Nations Conference on Trade and Development (UNCTAD), regulation of cryptocurrencies should not focus on restricting their usage.
Instead, when cryptocurrencies are showing to be valuable, regulators should welcome or promote wider usage of cryptocurrencies. Innovations that aim to level the playing field or emancipate the underprivileged should be protected, not shunned.
