Opportunities through crypto currencies in developing
countries
Based on the analysis of the economic problems in developing countries,
crypto currencies can accelerate the development process potentially in various fields. In general, new technologies and innovations are key solutions for
the catch-up process of developing countries as Chudnovsky and Lopez
(2006) have pointed out.
People need access to the internet to benefit from crypto currency-based
enhancements, as only people with internet access can trade crypto
currencies. For this reason, it is good and necessary that the usage of the
internet in developing countries has increased dramatically over the past
decade (Aker & Mbiti, 2010; Tapscott & Tapscott, 2016).
In Figure 1 the internet user penetration rate of the total population is shown
by region. It compares the current status, with an estimated future status to
see the development over the years from 2017 to 2025.
It can be seen, that the share of internet user of the total population is expected to increase significantly in the whole world. The growth rate is
especially high in areas with more developing countries like in the Sub-Saharan Africa region with a growth rate of over 90%. This shows that
developing countries have a rapidly growing interest in the internet and the
related innovations.
Without crypto currencies the local fiat currency must often be exchanged to
more wide-spread fiat currencies like the US dollar or the Euro and then must
be converted again into the target currency, since there is often no liquid
market for the exchange of the fiat currency to the target fiat currency. This
process could be optimized through crypto currencies, which could make it
faster and cheaper (Ammous, 2015).
For example, a Chicago-based Indian worker could use a local service
provider that transfers US dollars to Bitcoins to transfer money to a family
member in India, where the family can then deduct Rupees at a local service
provider, which changes Bitcoins to Rupees. This would make companies as
Western Union reluctant. However,
it is essential to have a liquid market for
the exchange of Bitcoin to US dollar and to Rupee to increase efficiency. To
create a liquid market for Bitcoins some start-ups have been founded, such as
BitPesa in Kenya, which provide liquid markets for some specific currency
corridors, e.g. for the direct exchange of Kenyan Shilling to US dollar.
Crypto currencies could furthermore solve the problem of the participation in
international trade without having a bank account. Crypto currencies like
Bitcoin could help individuals and businesses to facilitate small-scale
international trade. Using Bitcoins enables these parties to sell products in
exchange for Bitcoin and thereby avoiding traditional e-commerce systems
(Scott, 2016), which often involve having to set up a merchant account with a
formal bank.
Another way of how crypto currencies could help to increase financial inclusion in developing countries is by serving as a quasi-bank account, since everybody with internet access can download a Bitcoin wallet (Honohan, 2008).
This wallet then can be used as a quasi-bank account, where people can conduct savings, and daily transactions (Scott, 2016).
The decrease in transaction costs could also increase the possibility for
microcredits because currently, money transactions face high costs. The
elimination of these costs would open immense possibilities for international
financing. Using crypto currencies enables individuals in more developed
countries to make small money transfers to people in developing countries.
This transaction might be for a small amount of money but could be life
changing for an individual in a developing country.
Such microfinance transactions are currently expensive because the
borrowing and the repaying transactions, face transaction fees that are almost
as high as the payment itself. However, when transaction costs are massively
reduced or are even eliminated, such loans could become more widespread
(Ammous, 2015).
In addition, crypto currencies, predominantly in combination with smart
contracts, can contribute to strengthening social trust and fighting corruption
through a more transparent contract system. Citizens can use the publicly
available record data of the crypto currencies in the blockchain to monitor the
way in which the state funds are used. It would also allow governments to
track their spending better and to improve their budget allocation (Schmidt
Kai Uwe, 2017).
