There is great potential to further strengthen the development of developing
countries with the help of crypto currencies for example, by reducing
corruption through enforcing social trust or by increasing financial inclusion
of the population (Rothstein & Uslaner, 2005). Moreover, crypto currencies
can allow people and firms to utilize technologies and increase the speed of
development (Expert 3, 2018). However, it must be noted that realizing this
potential is often significantly harder than it seems due to various limitations.
Examples of such limitations are illiteracy, financial illiteracy, unstable
political situations, unstable job markets and price volatility (Expert 7, 2018).
Improvement of financial inclusion in developing countries
The improvement of financial inclusion is the most significant and most
developed benefit of crypto currencies for the population in developing
countries (Darlington, 2014). As previously shown, crypto currencies can
lower the transaction time and costs significantly and can act as a type of bank
account that allows people to make savings and conduct daily transactions
(Honohan, 2008; Scott, 2016).
However, the realization of the benefits of the financial inclusion is associated
with various issues. One difficulty is that crypto currencies are not widely
accepted and therefore have to be exchanged to the local fiat currencies, that
their value can be used to purchase real-world items (Expert 5, 2018; Expert
1, 2018). For the exchange procedure, it is often necessary to have a
traditional bank account. This requirement limits its impact because those
without a bank account cannot use the stored value in crypto currencies.
Consequently, “crypto currencies face the same problems, which traditional
banks are facing” (Expert 5, 2018). Crypto currency themselves can be used
without a KYC process. However, the exchange of crypto currencies into the
local fiat currency requires a KYC process, for which the applicant needs a
document of identification. People without identity papers are therefore
excluded (Expert 5, 2018).
In addition, crypto currencies can help to execute transactions much faster
and cheaper than traditional bank transfers, such as the SWIFT process
(World Bank, 2018). By eliminating some intermediaries, mobile payment
operators and crypto currency transactions can reduce the costs and increase
the speed of the transactions (Tapscott & Tapscott, 2016).
Crypto currencies can be very promising for remittance payments. The lower
transaction costs for using crypto currencies will also leverage microcredits
since only a smaller amount of each transaction will be deducted for banking
and the conversion fees (Expert 5, 2018; Expert 6, 2018; Scott, 2016).
However, the lending process is currently restricted to small amounts,
particularly for individuals in the low-income segment, due to the fact, that
the items they own are typically difficult to efficiently collateralize with
traditional financial tools.
For example, it is difficult for banks to grant loans
with life stock as collateral (Expert 7, 2018).
Furthermore, crypto currencies help to create access to the world market for
businesses particularly when they want to expand (Expert 1, 2018). Their
customers can then pay companies from other countries in crypto currencies
even if the firms do not have a bank account with an international
identification. For example, a website developer in a developing country can
get hired by customers outside of his country and can get paid in crypto
currencies such as Bitcoin (Ast, 2018).
Figure 3 shows the summarized requirements and the opportunities of crypto
currencies in developing countries. In the upper part, it can be seen that a
sound regulatory framework and political support are required to achieve a
stable price level. A stable price level is then a prerequisite for the mass
adoption of crypto currencies (Jaag & Bach, 2015; Scott, 2016).
Only when all of these requirements are fulfilled crypto currencies can unfold
their full potential and improve the financial inclusion, make cross-border
payments cheaper and faster, enable micro-lending, expand the access to
trade for businesses, increase the social trust and decrease corruption
(Darlington, 2014).
