Over the past few years there has been a growing interest in the use of cryptocurrencies or cryptoassets as they are sometimes referred to in the field of public policy and management. If the technology gets adopted by central banks and becomes mainstream economic behaviour, the effects on the public finances of nations could be massive, as it is not uncommon for central banks to support the budgets of governments as well as other forms of revenue-generating activity. It is in the area of development, however, that SOAS academic Alberto Asquer believes the real potential for the cryptocurrency industry lies.
Despite the potentials, Alberto is not naive about the significant challenges that need to be overcome in order to enact such significant technological changes in national and international financial management systems. From a technological standpoint, I had to spend a lot of time to grasp the fundamentals as I am not trained in the computer-science of cryptocurrencies.
But I think the public understanding of cryptocurrency has been further undermined by the prevalence of scam schemes. This is not un-deserved, to a large extent, and is why I am in support of much more regulation. So we need to find better ways to make it work more efficiently and faster. These are not issued by a government, but their value is linked to a government-backed currency or a basket of assets.
In short, these are cryptocurrencies issued by central banks with the full faith and credit of the associated government. You can think of them like dollars or euros or yen or whatever, but with blockchain technology underpinning them. Not really. They're mostly in the research and development phase right now. Interestingly, they found early uptake in the Caribbean, with eight of the nine countries that have launched CBDCs are located there.
But, many central banks across the world are currently exploring or looking into CBDCs, including the U. Many, many more. That's pretty fascinating. Central banks are looking at how blockchain technologies can be used to improve the efficiency and security of FIAT currencies that they're already managing. But this blockchain tech, it's my much more than these virtual currencies, right?
The crypto technologies, blockchain technologies, it's bigger than that. Yeah, definitely. Yes, blockchain is the technology that underpins many different cryptocurrencies. But, it's also being used for many other things that require transactions to be fast and secure, but also decentralized.
Just for one example, you could see it being used for things like smart contracts that facilitate global trade, or other business transactions. Not just payments. You could also see it used to facilitate cross-border remittance payments. Not necessarily as the currency, but as the technology that secures and guarantees the transaction itself. There's also the potential for it to be used to improve land registries or even the transparency around tracking aid transfers.
A lot of this is still somewhat theoretical, but it's really interesting. Well, crypto tech or blockchain tech, whatever you want to call it, it is really fascinating. It's clear, it's so much more than just cryptocurrencies. Thank you so much for this little Blockchain Let's get more now on how crypto technologies have the potential to boost international development work.
Joining us now here in Washington, D. Jean, thank you so much for being here. Let's start by trying to separate fact from fiction. There's a lot of hype around blockchain, but realistically, how do you see it benefiting international development? So, I'm going to focus essentially on the financial sector, but for the financial sector, it's actually transforming finance.
It's really a major, fundamental change. That, obviously, from a broader development perspective, blockchain can do much more. We'd have example of trade of things, I think, from a financial sector perspective. It's really transforming finance, new players, new use of data, being able to much better understand where are the customers. Different way to assess creditors, so it's really a fundamental change in ways that can provide lots of opportunities.
Also, bring new risk. The business that we would have in the financial sector is, how do we manage risk, provide opportunity and make this available for the most excluded and really drive the financial inclusion objective, using the new ways of providing finance? You mentioned some of the applications there, cross-border payments is another. Remittances is one that pops to mind.
It seems like a sector that's ripe for blockchain disruption. It's relatively expensive to send money across borders right now. What impact could blockchain technologies have on remittance payments? First, we are going to talk about cross-border remittances.
You can have domestic remittances and already, person-to-person payment. I was using the example of using your cell phone to send money instead of having to drive and give cash to someone. Now, cross-border payment is a very complicated business where you have lots of intermediaries. Clearly, there is a potential for disruption there. It's not going to come tomorrow. There are lots of challenges to be met, but I think this is something that can really change.
Let's get back to the numbers. This is more than FDI and official development assistance combined. It's a very huge amount of money-. Very important for development. The objective is to reduce that significantly. The less intermediaries you have, the easier it is to do it. The more the costs are going to go down, the more transparency you could have, also, using the data mechanism. Imagine you cut the cost of sending that by two, that means the beneficiary families have more to spend for their basic needs [crosstalk ].
Right, you've got more money going into their pockets directly, if you're cutting down on the fees. I mean, this is why it's going to change. What we've seen also, thanks to COVID, is that remittance is also part of the resilience, ability to absorb shock. The more money they can put aside, the more they will be able to absorb shocks going forward. First, this is part of the system of development goals. We've seen a decrease in the fees.
So, what you need to look at, corridors. What we call remittance corridors and the fees are going down, so there are different reason why they're going down. One of it is to bring more competition. So, the more players you have, the more competition you have. The more transparency you can also have. That's where the digital comes in, because one of the fundamental change brought by digital finance is the ability to bring in new players.
Again, an example. A couple of years ago, the only way you could send remittance was through your banks. If, now, you can go to other service provider, then there will be more competition. Therefore, you will bring the cost down. The other part is more transparency, because when you know that if you go to one place versus the other, it's going to cost you less. Then, you will go to towards where you have the most benefit.
This is where digital can also provide more incentive and facilitate, somehow, the competition from the customer perspective. Then, one of the element that you see on cross-border payment is integrity. We make up that concern on anonymity with the crypto assets, but they also benefit in the sense that you can trace the flow of money much more easily. Because it's registered somewhere, there is more integrity to the data. As everything in finance, you have a plus and you have minus.
Part of it is maximize the plus and managing the risk related to the minus. Got it. Another area that could potentially benefit from blockchain technologies is trade, right? Could you talk a little bit about the trade challenges that blockchain could help with? When we think about merchandise trade, we tend to think about the physical movement of container.
We see at the moment, with all the supply chain discussion, that's actually pretty complicated. But, there is also a flow of information and underlying payment. When you look at custom clearance, the number of stakeholders that are to come together so that there can be proper and effective custom clearance. You have 20 to 30 different parties, bits of data. I don't know, many documents, more than The benefit of digital is that you can bring all of this together in one place and facilitate the exchange of information.
Sometimes, people are able to directly access the information. A lot of work has been done to automate the flow of information for trade, but essentially, the centralized solution have been at the port level, or one single window. That's what we call single-window for the ports. Now, the next element is [inaudible ] of information between countries. Because the easiest it is to facilitate that extent of information and the integrity of the Information.
That's where blockchain and data ledgers come in. You know the information is there, you know that it cannot be changed easily and there is control on who has access. Then, you can have elements of trade documentation and the portfolio about the trade that makes it much easier to do custom declaration and custom clearance.
We need to get to that next level and everybody working on that. But, that's a very interesting example of the potential to use digital, to really facilitate cross-border trade and with the level of security and integrity that can really make a big difference. I want to talk to you about cryptocurrencies. Interest in them has obviously exploded here in the last few years. You can hardly turn on the business news in the morning without hearing about them. Yet, I can't go down to the cafe and buy a coffee very easily with them.
How do cryptocurrencies factor into international development? I mean, in most countries, naturally, you can now buy your coffee with your cell phone. Or, you should be able to do that in a way that is much easier than used to be the case a couple of years ago.
We're actually seeing this kind of development also in emerging market and developing economies. That change is coming and at one moment, emerging markets were actually providing more innovation than you may have seen in an advanced economy. I think that's the part, also, where there is such a need and also new providers being able to come into the system that you are seeing this kind of innovation. So, that's the first element. The second element is that the crypto asset world is actually a pretty complex one.
It goes from Bitcoin and it's been around. At the moment, there are still a lot of debate on what the value added. Is it more a speculative asset, or can it facilitate mechanism of payment? But, there's a whole element around the more traditional crypto asset, in the sense of decentralized mechanism.
You don't have the intervention of central bank with a risk of speculation and, sometimes, anonymity. Then, you have what we call the stablecoins, which are backed against traditional money. I mean, to simplify. This is really something where you can have the benefit of digital payment and, at the same time, not the risk of the volatility of the asset, which has been one of the major problem with the Bitcoin and equivalent. Some of them are called global schedule coins, which would be, somehow, a source of finance that you can use across the world.
A couple of years ago, you may remember Facebook mentioned Libra as a way to do that. In the in between, a lot of discussion are taking place with the regulators on, can it work? But, I think that created the potential to think about that and there is a lot of discussion at the moment on these global stablecoins. Then, you have the current development on what is called Central Bank Digital Currency.
Where it's actually the public sector, the central banks, that then provide the digital money, to simplify. Therefore, that will lose a direct claim on the Central Bank. So, you don't have private money, but public money. That's the way, the equivalent of your dollar, but in your cell phone and issued by a central bank. There is a lot of work going on at the moment, with some central bank are being already adopted this and others looking at it.
Thinking about it, creating pilots, et cetera. So, the big question is, how can we then mobilize that for cross-border payment and integrate the systems amount? Instead of having to go through the whole system of financial institution and what we call cross-bank and banking relationship, then you can make it [inaudible ] directly.
At least, that's the potential going forward and some of the tests at the moment. Imagine, with each intermediary taking their fee in the transaction, if suddenly you can reduce the number and directly transact, you don't have to wait. It reduces the cost, there is more transparency.
Obviously, that's going to be a bit more complicated than it, but fundamentally, this is the discussion in front of us and what people are looking at and testing as we speak. I want to move a little to climate, which is something that's really on our minds lately. With the recent COP26, what are the climate implications, if we're seeing greater uptake of cryptocurrencies?
It's a complicated discussion. I mean, as you know, there is that old discussion on the Bitcoin mining and the fact that it takes a lot of energy. Therefore the net element, in terms of climate impact, is not totally clear. Some partners have said that they've actually find a way to reduce the energy footprint, somehow, of Bitcoin or equivalent.
So, this is an ongoing debate. At the moment, from what I understand, the jury is still out as to whether it's possible to do it that way. Now, if you think about it, more digital money generally, so at the moment, in most countries, if you want to open a bank account, you need to go to the bank.
You need to take your car, you need to face people. Imagine that you can do that all remotely, without having to travel, without having to take your car or the bus, et cetera. I'm not sure that anyone has actually done the calculation of how it would reduce the carbon footprint, but clearly, there is a potential there to reduce the physical transportation element.
As well as all the elements related to keeping this in terms of real-world paper and destruction of that paper, et cetera. We are looking at that at the moment and my colleagues working on payment system are trying to identify whether we can have a kind of assessment of the benefit.
But clearly, the ability to go digital and to reduce the physical face-to-face has a benefit in terms of carbon footprint. That mining mechanism is the part that brings about the climate footprint. Are there any other pitfalls with using?
Did I get that right, or did I get it-. You're right on the Bitcoin, because the production of it, if you'll go Central Bank Digital Currency, for instance, you don't have the [inaudible ] because you don't need to mine. It's just the assurance by the Central Bank of the virtual equivalent of your dollar or Euro or whatever other currency in your pocket.
I think that's less the case, but for the mining of Bitcoin, that's been one of the element of concern, on the carbon footprint and energy footprint. Beyond climate change, is there other pitfalls that people should be aware of when it comes to cryptocurrency?
There are different elements. One is data. There is a huge potential, because you have more data, more information and therefore, you can have better credit profile of the customers, for instance. You have a couple of fintech companies that are beginning to look at patterns of consumption. Now, people go online and they're able to fine tune your credit profile thanks to that.
That means, potentially, not just through the credit registry, based on your past financial industry, but your broader history. You will be able to fine tune more and probably thanks to that, reduce the cost of finance for some people who don't have that history.
Therefore, you can begin a credit entry in much simpler way, by looking at the rest. The data usage is very fundamental, as you see with what Amazon is doing, to some extent. Now, the flip side of that is that, obviously, you are more exposed. People have more information about you, but there is an element around data governance and using data in ways that can really be beneficial.
Linked to that is obviously privacy. You need to make sure that there is the environment on that. That the last demand is around integrity. The abuse of the financial sector for money laundering or things like that.
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The very fact that many countries have already acknowledged Bitcoin as a legal tender suggests that phase 2 is on the horizon for many, which will likely involve the reversing of their recognition of Bitcoin in the interest of successfully issuing their own cryptocurrencies. J-Coin ICO certainly looks to be on the cards, with a consortium of Japanese banks getting ready to launch a national digital currency to pull citizens away from paper money as J-Coin ICO is expected to take place ahead of the Tokyo Olympics.
For now, the Bank of Japan and financial regulators are backing the project. A cashless world is just around the corner and cryptocurrencies are the perfect replacement, with HSBC, Barclays, UBS and Santander currently developing a Universal Settlement Coin in a bid to make trade more efficient. For those who are looking to take advantage of Bitcoin and other cryptocurrencies price fluctuations, Some brokers provide traders with instant access to trade Bitcoin, Bitcoin Cash, Ethereum and other cryptocurrencies.
The process is fast and easy with convenient and advanced trading platform desktop and mobile , low spreads and instant execution. Click here for more details. By : Bob Mason. Mentioned in Article. So far, the countries that launched their own Cryptocurrency To date, countries that have issued their own cryptocurrencies include Ecuador, China, Senegal, Singapore, Tunisia, though these countries will not be standing alone for long with Estonia, Japan, Palestine, Russia and Sweden looking to launch their own national cryptocurrencies.
Get Into Bitcoin Trading Today A move to a centralized cryptocurrency will unlikely be well received by the crypto community, though few will argue against the need for some regulatory oversight and it would perhaps be more appropriate to come from a regulatory body that is independent of governments and Central Banks as paper tender remains in circulation.
Not only countries: What is Numeraire Cryptocurrency? Don't miss a thing! Sign up for a daily update delivered to your inbox. Latest Articles See All. Expand Your Knowledge See All. Centralized Crypto Exchanges VS. Decentralized Exchanges. Sponsored Sponsored. Some public means of transportation even allow payment in cryptocurrency. It has multiple real-life uses that can help the everyday lives of people around the world.
South Africa. The crypto scene there has continued to grow immensely over the years and despite regulatory clampdowns, the interest in cryptocurrency has not dwindled over time—in fact, it has continued to grow stronger. Not only do they use cryptocurrency as a means of wealth preservation, but they also use it as an investment tool as well as an easier way of sending payments abroad.
One of the biggest real-use cases for cryptocurrency in Africa is sending out remittances. In that case, the use of cryptocurrencies makes it cheaper and more efficient. Final thoughts. Seeing it happen in the top 5 crypto-adopting countries in the world shows the true power of cryptocurrency.
Check out how to create a bitcoin account. If the world knew what kind of real-life uses cryptocurrencies had, it could increase the possibility of mass adoption and as cryptocurrency enthusiasts, this is something we all want. Go to top. Sign in. Forgot your password? Get help. Create an account. Password recovery. The World Financial Review. The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.
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That's because this virtual currency serves as digital money via which people can transact over the internet. While a significant percentage of people in the developing world are poor, they can access and use the internet. crptocurrencyupdates.com › opinion › outlook › bitcoin-adoption-and-its-impacts-on-the. But in the developing world, there are signs that crypto is quietly building deeper roots. Especially in countries which have a history of.