In many Latin American countries, remittances from relatives living in wealthier nations, such as the United States, contribute a large percentage to local economies and provide a lifeline to family members living there. The volume of remittance payments from the United States to Mexico was $40 billion US dollars in 2020, and this number is continuing to grow. Traditionally, companies such as Western Union have been able to charge large amounts in commission, profiting from often the poorest in society who have had no alternatives available to send money home.
Commission on sending cash from the US to Mexico is often as high as $10 for every $200 sent, and the fact that these transactions are generally small yet frequent means that senders don’t benefit from the economies of scale on exchange rates that banks and investors enjoy.
Hit By the Pandemic
The issue of transaction costs has been compounded by the global pandemic, where unemployment has skyrocketed across Latin America, yet governments were unable to issue the type of stimulus packages seen across the developed world. Families became increasingly reliant on remittances, and every cent mattered.
A Novel Solution
And that’s when families increasingly started to turn to cryptocurrencies for a high-tech solution. Commission on crypto transactions is far lower than that of traditional international currency transfers; it can often work out as low as $1 on every thousand dollars sent. The volatility of cryptocurrencies, often seen as their greatest weakness in developed economics (or causing them to be seen as purely speculative assets), is also not such a problem in Latin America. Currency fluctuations in these countries are often even more extreme than those of crypto, meaning that cryptocurrency is, in many cases, a more stable way to transfer money than transactions in the local currency. This is very much the case in Venezuela, where inflation is often as high as 20% per month, and currency controls, combined with international sanctions, have made remittance payments extremely difficult to manage.
The Tech Is in Place
Smartphone ownership across Latin America is very high, meaning that the first step to working with crypto is very straightforward: family members can simply download a crypto wallet and get started with digital currency right away. The infrastructure is already in place for them to withdraw these funds in the local currency when they are ready to spend them. The Mexican exchange Bisto actually set up a crypto ATM in a supermarket in Illinois, USA, in an area where there were a high number of migrant workers. The machine allowed users to send digital currency to their family members via WhatsApp, and it was met with some success.
Another major advantage noted by ex-pat workers is the political neutrality of digital currencies. Where the US dollar can be used as a weapon and is politicized by the fact that it is the currency of the United States, digital currencies are neutral and decentralized, essentially apolitical and independent of international developments or anti-migrant sentiment.
Digital currency provides a solution to those who need it most, with very few barriers to adoption. Marketing and education are needed to ensure that those who can benefit from the technology have the knowledge they require to use it successfully.