Similar to El Salvador, Tonga draws a large percentage of its income from remittances, making cross-border payments a challenge.
Remittances are crucial for developing economies, as they quickly and efficiently put money directly into the hands of individuals.
However, as one emerging economy moves toward crypto adoption, there is a growing divide.
The opposite end of the spectrum is Pakistan. The country's federal government and central bank put together a report recommending that it ban cryptocurrencies, a position that is now been considered by the country's court system.
If this is approved, Pakistan will join nine other countries, including China, Egypt and Algeria, which have absolute bans on crypto.
According to the Library of Congress, 42 countries currently have implicit bans. While an absolute ban is defined as “transactions with or holding cryptocurrency is a criminal act,” an implicit ban prohibits financial institutions from dealing with crypto.
Why the growing divide among emerging markets? Global use of cryptocurrency is skyrocketing, and nowhere is this more evident than in emerging markets.
Facing currency devaluation, government distrust and complex remittance processes, more and more emerging market citizens are embracing crypto.
Crypto adoption has been on the increase, with emerging markets as a main driver. Recent Chainanalysis data showed the use of cryptocurrencies skyrocketed, climbing more than 880% in 2021.
Why would citizens in emerging countries turn to crypto? In Turkey, ads for crypto exchanges are widespread and can be seen across Istanbul, as bitcoin shops appear alongside gold and foreign currency traders.
The recent devaluation of the lira and the record-high inflation have prompted more Turks to buy crypto, even after the country made crypto payments illegal in 2020.
Remittances are made easier with crypto, enabling emerging market citizens to send cross-border payments cheaper and with greater ease.
A recent study conducted by payments giant Visa found that consumers increasingly use digital remittances to send cross-border payments, with over half of those surveyed preferring digital over other methods. To further help facilitate digital remittances, Visa is piloting the Visa Acceptance Cloud, enabling cloud-connected payment terminals in just about any connected device, with pilots across the world.
But the use of crypto in emerging markets is not without risks. While El Salvador pioneered bitcoin as legal tender, the government faces roughly $10 million in losses due to the recent slide in bitcoin’s price. And many of the country's citizens have been voicing concerns that funds are missing from their wallets.
China has banned crypto outright, however, the nation is moving full speed ahead to develop its own central bank digital currency. The country has conducted multiple trials with the digital yuan and is working on infrastructure to support NFTs not linked to cryptocurrencies.
As the payments space evolves, will the divergence between jurisdictions that encourage crypto and those that ban it continue to widen? As always, thank you for reading! |