From a statistical point of view, it is clear that cryptocurrencies continue to gain popularity in the financial market. Cryptocurrencies can help reduce inflation rates and further show merits that improve the economies of developing countries.
In developing countries that use cryptocurrencies, minimal fraud and corruption cases are among the advantages that align with promoting transparency and having better financial inclusion.
Microfinancing is also part of the advantages brought about by using cryptocurrencies in developing countries. Take, for example, the region of Venezuela, where they are currently trying to beat hyperinflation. Using cryptocurrencies is seen as the only way to curb this problem.
Also, with the current statistics from Global Finance, many countries show a high population of unbanked individuals. Cryptocurrencies prove to be a reliable solution that provides several solutions to financial market challenges for unbanked persons.
How Cryptocurrencies Benefit Developing Countries
With the adoption of cryptocurrencies in developing countries, the benefits realized in these regions prove to have great importance. Current trends also illustrate their significance towards rescuing these regions from the flawed monetary system. These benefits include:
Beating Hyperinflations
The case in Venezuela is a current trend that conveys how cryptocurrencies can support developing countries and influence their economies positively. The official currency in Venezuela has been plummeting for a long time. To curb cases such as inflation, various government and crypto enthusiasts should take up digital currencies.
Gabriel Jimenez, a 31-year-old programmer, is a Venezuelan struggling to push the Reserve digital coin to counteract the high inflation in Venezuela.
News from LocalBitcoin illustrates the surge in cryptocurrency trades by people of the region. Last year’s inflation rate in the region reached 6,500% and affected the citizens’ life savings. Moreover, using cryptocurrencies provides Venezuelans with an opportunity to enjoy the benefits of using digital assets, including security against protection against inflation.
Most individuals across the globe venture into cryptocurrencies such as Bitcoin because they are protected against inflation. Since they serve as an inflation hedge, large investors continue to back up these cryptocurrencies, further comparing them to gold.
Governments control the fiat currencies, and this does not guarantee protection against liquidity traps. Basically, this means that the nominal interest rates are at zero.
Reliable Solution for the Unbanked
The unbanked individuals of the society represent the individuals who do not have access to bank services or financial organizations. It is difficult to picture such scenarios with the current financial world, let alone an individual with no savings account, no insurance, access to loans, and financial security.
The recent pandemic has shown the paramount importance of having immediate access to financial services. As the virus made it impossible for people to interact, people adopted digital currencies, and some regions such as China and Sweden are becoming cashless societies.
According to the Merchant Machine platform research, the regions with the highest unbanked population include Morocco, Vietnam, Egypt, the Philippines, and Mexico. Regardless, this still does not account for the developing countries and emerging economies that exclude various members of society.
For example, the Middle East financially excludes 50% of its population, while South and Central America second at 38%. Most African regions also have a high unbanked population.
With all this in mind, using cryptocurrencies goes a long way in ensuring financial inclusion and bringing financial services to everyone worldwide. To start using any cryptocurrency, mostly one requires internet access as well as a digital device.
For skeptically minded people who do not believe in financial institutions, using digital tokens to secure transactions is fast but cheap. It is secure from theft, and the technology is flexible. Here, the unbanked can transparently make their financial alternatives.
Removing Third-parties
Cryptocurrencies do not require premises to exist, and as such, expenses incurred in associated transactions are meager. In other words, there is no need for wages awarded to employees nor the need to pay utility bills.
In the case of bank-issued currencies, a third party establishes trust to oversee exchanges, and this presents a risk premium of the high transaction cost. On the other hand, Bitcoin as a cryptocurrency uses complex mechanisms, encryptions, private and public keys to control transactions.
One result of this is the reduction in transaction costs. Also, individuals get encouraged to trust cryptocurrencies and transact using the financial tool. In the long run, this improves the global economy, mainly benefiting developing countries using digital currencies.
Cryptocurrencies Offer Transparency
All blockchain and cryptocurrency transactions are digitized and usually tracked using a distributed ledger. An advantage of this is that manipulation of digital currencies is impossible. As such, it eliminates the risk of fraud.
Also, developing countries can freely indulge in financial transactions without worrying about the challenges faced in using fiat currencies. Their involvement in financial transactions boosts their economic status, thus aiding developing countries.
Impact of Cryptocurrencies in Developing Countries
Cryptos like Bitcoin continue to play a prominent role in impacting the financial systems of these developing regions. There are two significant advantages that crypto brings to the table that support underdeveloped countries. These advantages include:
- Provides a global exchange platform- Cryptocurrencies provide a global exchange platform that does not have limitations of government interference. This means that you can transfer funds across the globe without going through intermediary institutions. Transactions are way cheaper and faster when using cryptocurrencies.
- Supporting financial inclusion- To access cryptocurrencies, all you require is a digital device to access the internet. It does not require complex technological standards, and also no state can influence the supply of cryptos. These advantages show why cryptos continue to gain popularity and reduce inflation in developing countries.
Final Word
Cryptocurrencies have proven to be the most secure, transparent, and adequate financial tool realized in the modern age. It eliminates significant challenges presented by local currencies and, as a result, continues to improve the global economy.
Developing countries share one common challenge, and that is fraud. With the aid of digital currencies, trust and security for financial investments get restored, and in the long run, the global economy develops. As proven from this article, using cryptocurrencies in developing countries is very advantageous in boosting their economy.
