As the crypto trend has been growing strong in recent years, is it able to help improve the plight of the poor and enhance financial inclusion?
Financial difficulties in developing countries
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Further, in countries with hyperinflation, such as Venezuela and South Sudan, storing fiat currency is of no value to them since it will likely result in a tragic loss of money. Worse still, corruption is another major block for the vulnerable to receive foreign aid. A large chunk of the money raised is eventually left to the pockets of government or other intermediaries.
Why crypto could work in developing countries
Crypto allows people to manage financial accounts on an open and peer-to-peer networking system called blockchain. It stores digital transaction records permanently and safely and enables fast and low-cost transactions made without the control of any intermediaries.
Among the unbanked population with no access to banking, 607 million people do have a mobile phone to access the internet. There lies a huge potential for the community to use crypto and enjoy the edges of financial inclusion.
Increase access to banking and payment service
In developing countries, using local banking services are inconvenient and tricky. Pain points include transaction inefficiency, extremely expensive transaction cost, and high travelling cost due to the long distance to the bank. They prefer to keep money in hand and resort to informal services such as physical delivery of cash to deal with transactions, even knowing the risks involved.
On the other hand, crypto can provide a secure and accessible platform and financial identity to the unbanked population with access to financial services, such as savings, payments, loans, mortgages, and insurance services. This trustworthy platform brings them peace of mind and improves their overall welfare. For example, individuals can make daily and cross-border transactions with lower cost and higher security and even buy houses and make investments. Also, small-scaled companies can also obtain loans in cryptocurrency for business growth.
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For example, in Venezuela, its local currency bolivar has lost two-thirds of its value this year. Switching to a more reliable form of wealth storage brings financial security to the poor. And cryptocurrency comes in as an alternative with a better store of value. Like Bitcoin, commonly known as digital gold and is recently labelled as 2019’s best-performing asset, its value has surged exponentially and is still growing strong. It becomes the perfect tool to counter the hyperinflation despite its volatile nature.
Put foreign aid right in the hands of the needed
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Thanks to its traceability feature and high transparency, crypto can be ideally used to bypass corruption or economic control by the intermediaries. Financial transaction records are maintained transparently across a distributed ledger which leaves no room for manipulation, thus ensuring the right group receive money.
A growing number of charities are using crypto to send financial aid. In particular, more and more local charities in Venezuela are providing direct transfer of aid to underprivileged families. For example, organizations send tokens or token vouchers to people’s mobile apps for them to exchange for local currency to buy food. Some organizations directly purchase food and medicine using crypto donations and distribute to them.
Challenges and future
Ultimately, using crypto to combat poverty also requires tremendous education efforts. It is essential to educate people on how to use crypto and its applications. That’s what OKEx has been doing in Africa recently, sharing real-world crypto use cases that inspire people how crypto can change the entire way of living. Of course, in the end, it is equally important to implement stable internet access for people in emerging countries. If not, no one will be able to benefit from the financial inclusion bring by crypto at all.