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A report published by the World Bank in May 2022 indicated that remittances would reach $630B in 2022 with obvious record flows in Ukraine. This is the logical consequence of the war triggered in Ukraine by the Russian invasion on February 24, 2022, as Michal Rutkowski, Global Director of the Social Protection and Jobs Global Practice at the World Bank, stated:
“The Russian invasion of Ukraine has triggered large-scale humanitarian, migration and refugee crises and risks for a global economy that is still dealing with the impact of the COVID pandemic.”
Within this report, we also learn that Sub-Saharan Africa emerges once again as the most expensive region to send funds to. With an average cost of 7.8% per $200 sent, the region, which received $49B in remittances in 2021, only bettered the 2020 figure by 0.4%.
Recorded inflows to Nigeria, the largest recipient country in the region, gained 11.2 percent, in part due to policies intended to channel inflows through the banking system. Countries registering double-digit growth rates include Cabo Verde (23.3 percent), Gambia (31 percent), and Kenya (20.1 percent). Countries where the value of remittance inflows as a share of GDP is significant include the Gambia (27 percent), Lesotho (23 percent), Comoros (19 percent), and Cabo Verde (16 percent).
At the global level, the average cost of remittance funds across borders stood at 6% during the same period. For the World Bank, the situation is problematic, as average global transaction costs are far higher than the Sustainable Development Goal (SDG) target of 3%
Despite efforts over the years to lower these costs, the cost of transferring funds across borders remains high. Far too high for people who already have little. The current trend suggests that the UN SDG target will not be met. Thus, migrants are the first to be impacted by these prohibitive costs.
Migrants seek solutions to the high costs of formal channels for remittance
This problem has pushed migrants to look for new solutions to reduce costs. Solutions that go beyond the formal channels that are usually accompanied by overly stringent KYC policies. Couriers, cross-border trucks, or bus drivers are some of the informal ways that migrants use to send money to their relatives. However, these informal methods have their challenges, the main one being the security of the funds.
Bitcoin and cryptocurrencies are emerging as much safer alternatives. Their use is growing among migrants who can send money to their relatives back home. The 2021 Geography of Cryptocurrency report by Chainalysis clearly shows that a growing number of African migrants could now be using peer-to-peer crypto exchange platforms when sending funds back home.
The development of P2P platforms in Africa is also explained by the fact that more and more countries have sought to make it more difficult to use Bitcoin and cryptocurrencies via customers' bank accounts by passing restrictive laws or pushing banks to ban such transactions. Examples include Nigeria, which is trying to push its eNaira in the opposite direction, and Kenya.
These countries are not doing their citizens any favors, and it is interesting to see that the Central African Republic is taking a more ambitious approach by wanting to establish itself as the leader on the African continent in this field via the recent adoption of the Bitcoin standard.
In its report, Chainalysis states that between July 2020 and June 2021, a total of $105.6B worth of cryptocurrency was sent to recipients located on the African continent. Of this total, 96% of the transfers were for cross-region transfers.
It is also interesting to note that the number of incoming transfers that are under $1,000 is the other metric used in this report to show that African migrants are using Bitcoin and cryptocurrencies to remit funds. According to Chainalysis, the number of such transfers went past the 200,000 mark for the first time in May 2020 and has stayed above this level since. In fact, by May 2021, the number of transfers below $1,000 was just under 800,000:
Bitcoin as a solution for migrants
Bitcoin and cryptocurrencies have the advantage of being a faster and more secure way to send money in the first place. But this is not the main difference for migrants. The main difference is the cost of transferring funds, which does not depend on the amount sent.
While it may cost as much as $10 (10%) to move $100 from South Africa to Zimbabwe when using regular corridors, the fees will be well under a dollar on the Bitcoin network. Even better, using the Lightning Network, which is the future of Bitcoin as a large-scale payment method, the fees will be virtually non-existent.
It's easy to see why Bitcoin and cryptocurrencies are unanimously considered a better alternative to regular remittance channels.
While many opponents of Bitcoin spend their time criticizing Bitcoin for completely false reasons by pushing regulators to pass legislation that is negative to the industry as a whole, it would be better for politicians to focus now on what Bitcoin brings to the world. Bitcoin is seen as a speculative investment in the West by many people, but going beyond the comfort of the Western world, one can already see that Bitcoin is a Plan A for many people.
Bitcoin is a necessity for people who have no other options and cannot rely on institutions like the World Bank or the UN to protect them. Rather than seeking to condemn Bitcoin and fight its adoption, the powerful in the current system should open their eyes and seek to truly help citizens around the world.
If this were to become their primary goal, one can only dream, then Bitcoin would be put forward as an essential solution to build a better future world for the many. This is not the path that will be followed, but you will see that such a revolution that is already improving the lives of millions of people around the world cannot be stopped.
The future will be Bitcoin.
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