Why developing countries want to adopt crypto as their legal tender
According to the World Bank, the number of people living in extreme poverty – on less than $1.90 per person per day – has increased over the past three years following the effects of COVID-19, increasing global conflicts, climate change and uncontrolled inflation. For nearly 25 years, extreme poverty levels have fallen steadily before the disruptions caused by the global pandemic. Furthermore, between 75 million and 95 million additional people could live in extreme poverty in 2022 compared to pre-COVID-19 forecasts, mainly in developing countries.
The post-COVID period has seen developing countries facing several challenges such as high crime rates, rising unemployment, political instability and corruption, which translates into rising poverty levels. Because of this, citizens lack an opportunity to improve, many of whom are unable to find the means to support themselves and their families financially. Despite the problems in developing countries, citizens are pushing to look for greener pastures elsewhere (mainly in developed countries), draining their own homelands of potential labor and skills.
To this end, several countries are looking for solutions to the growing poverty, with crypto-assets becoming increasingly popular worldwide. According to experienced Bitcoiner and co-founder of Philcoin, Dunstan Teo, “Crypto can not only provide a new stream of individual income, but also a new economy for governments to tap into to help rebuild their economic sovereignty”.
The emergence of crypto as legal tender across developing countries
In 2021, the world was shocked when El Salvador became the first country to accept Bitcoin (BTC) as legal tender and kept Bitcoin as a reserve on the country’s balance sheet. The move opened the door for global authorities to begin considering crypto as legal tender, with the Central African Republic (CAR) joining the bandwagon, making BTC legal tender earlier this year.
Shortly after, El Salvador’s president, Nayib Bukele, invited monetary authorities and central banks from 44 countries to the country’s Bitcoin conference. The conference was largely dominated by representatives from African and other developing countries, with the meeting discussing “financial inclusion, digital economy, banking without a bank, the Bitcoin rollout and its benefits in El Salvador.”
Nayib Bukele invited 44 states to the El Salvador Bitcoin Conference in May 2022. (Image: Nayib Bukele Twitter)
Nevertheless, there is little evidence of adoption of crypto by these developing countries with infrastructure deficits, mistrust, corruption, etc., preventing rapid adoption of crypto as legal tender. In fact, the Africa Blockchain Report 2021 by the Swiss-based Crypto Valley Venture Capital shows that 27 countries (out of the 54 countries on the continent) have an implicit ban on crypto, 4 with absolute bans, 17 with uncertain regulation, and only six have legal sanctions for cryptocurrencies.
Why developing countries should consider crypto as legal tender
The process of converting entire nations to accept Bitcoin and crypto as legal tender will be difficult. But with two countries already taking such a bold step, the future looks bright. Developing countries have the most to gain from the crypto ecosystem, which provides them with a number of benefits that could well help fight poverty and increase the overall GDP of these nations.
First, crypto was created to serve the unbanked and underbanked. Developing countries remain the most affected nations with over 50% of the population having little or no access to solid banking infrastructure or basic financial services. The rise of cryptocurrencies and blockchain technology allows people to participate in the financial ecosystem by giving them access to fast and affordable digital cash that can be used anywhere.
Despite this, the creation of the decentralized financial ecosystem (DeFi) gives the ecosystem access to advanced financial instruments such as loans, savings accounts and efforts to get a passive income or get quick access to a line of credit.
To this end, Philcoin, a philanthropic blockchain-based platform, is partnering with a number of Latin American and South African countries to bring crypto and tackle the challenges these countries face.
“Philcoin has started conversations with governments and influential leaders to see how we are able to provide opportunities where traditional financial means have failed them,” Dunstan Teo stated. “Their response has been overwhelming as these countries embrace change and are eager to find alternative ways to rebuild their economies through innovation.”
Cryptocurrencies are also a good hedge against rising inflation. Most cryptocurrencies have limited maximum supply and are designed to be deflationary. While the industry still struggles with high price volatility, using crypto can help fight hyperinflation in developing countries while providing stable money that is easily transferable and highly liquid.
As Dunstan Teo says, “Cryptocurrency remains unaffected by inflation as long as there is adoption and use; it can be a means of liberation for many”.
Finally, blockchain technology can be used to streamline the pool of national funds and reduce corruption, as all transfers are publicly recorded on an immutable platform. Several developing countries suffer from corrupt leaders, with public resources plundered and opportunities denied to citizens. Blockchain technology and crypto can help digitize all public documents and payments, which provides more transparency in the administrative processes.
