How does Bitcoin help developing countries counter inflation? There are several developed and under-developed countries that have been aided by crypto, especially Bitcoin among other cryptocurrencies, to handle inflation and other economic issues quite successfully.
In fact, in several third-world countries, Bitcoin is used typically and extensively as a digital currency to make different types of online transactions.
This is especially seen in those countries that have a tall percentage of unbanked individuals.
The main reason behind such widespread use of crypto or Bitcoin is perhaps the fact that people can connect to the internet quite easily now and take part in the crypto economy.
More often than not, the financial institutions are found to be unfriendly and uncooperative to the people who are from the low-income backgrounds.
Such an attitude of the financial institutions makes it quite hard for these people to access, use, and get the benefits of financial services, even the basic ones.
The banks usually have a lot of prerequisites and documentary requirements always, which makes it very difficult for the people even to open a regular savings account, leave aside getting their loan applications approved.
It is also the same for the entrepreneurs that need initial funding to start their businesses.
Crypto also helps the emerging markets because it allows filling the gap created by the national currencies of the developing countries.
How it is done and how crypto helps the developing countries to deal with inflation is what this article talks about. Read on to know more.
How Does Bitcoin Help Developing Countries Counter Inflation?
It is for the particular reasons mentioned above, the adoption rate of crypto is very high in the Asian and African countries.
In the third-world countries where crypto and crypto platforms are accessible, Bitcoin is purchased by the citizens and they either hold onto it as a form of investment or trade them all over the globe for profit.
It is mainly possible due to the decentralized nature of crypto.
Both the individuals and businesses benefit in the same way from using Bitcoin as a substitute for centralized fiat currency.
For them crypto acts as a safer, faster, and better alternative to customary remittances which is a vital economic lifeline for quite a lot of developing countries.
Such mode of remittances is especially helpful for those people who live in areas where traditional means of transferring money such as through the Western Union platform across borders is very costly.
In such areas, transferring money across borders through P2P crypto networks is a more viable option simply due to the low fees charged by them to make such transactions.
Another good thing about crypto is that it allows people to use it as a medium of exchange, as a unit of account, or as a store of value.
The crypto is able to address several issues that are created by the national currencies.
The developing countries typically face a perpetual and a significant issue –poverty.
According to a survey report of the World Vision, there are more than one and a half billion people living in multi-factorial poverty.
They are spread in more than a hundred countries.
This is an alarming stat because it accounts for more than 20% of the entire population of the world.
Typically, multidimensional or multi-factorial poverty includes and are not limited to:
- Financial difficulties
- Lack of Education
- Poor health
- Violence and
- Unemployment among others.
Now, given such a situation, the natural question is – Is Bitcoin good for these poor or developing countries given the fact that it is quite expensive? The simple answer to it is, yes.
This is because Bitcoin and other crypto coins serve several industries above and beyond finance though it was created initially to be an alternative to the financial instability caused by the heavy reliance of the economy on centralized banking.
It is all due to the blockchain technology behind crypto or Bitcoin.
However, it is clear the crypto solutions and the blockchain technology behind it will not solve poverty, and it does not claim to do so as well.
But, undeniably, what it will do is pave the way to offer better financial services and stability to the countries that need them the most.
For example, in the healthcare industry, solutions based on blockchain technology will help the underprivileged populations to gain much easier access to better healthcare.
This is primarily because crypto or Bitcoin can solve a lot of issues for these countries, including helping them to counter inflation.
A look at Bitcoin adoption at this point will be quite helpful to understand this aspect.
According to the World Bank, the number of poor people all over the world unfortunately stays unacceptably high.
On the other hand, the leaders of several countries and regions unevenly share all the benefits of economic growth at the same time.
Add to that, governments collapsing due to political turmoil, economic chaos, and civil wars also play a significant role in worsening the economic situation of the developing countries.
Moreover, when it comes to poverty, the economic factors are the principal drivers and these factors include limited access to the financial services, and, most importantly, high inflation rates.
There are lots of financial experts who also argue that the low level of trust among the people in the financial institutions as well as the high level of corruption in the government institutions also hurt and hinder economic development.
This is where Bitcoin and cryptocurrencies come in.
These are believed to have the potential to provide significant benefits to the economy and the people of the developing countries by allowing easy access to the financial services, as mentioned earlier.
Apart from that, Bitcoin can also help the developing nations to overcome social trust issues.
Some financial experts also believe that the adoption of Bitcoin will allow using it as a medium to support the economic growth process in poor, third-world countries.
The main reason behind such beliefs is that Bitcoin provides easier and better ways to trace funds which will eventually boost financial inclusion.
This will prove to be a more effective way for the people in the developing countries to overdo poverty.
All these features and possibilities of Bitcoin raise the trust among people and those living in third-world countries believe it to be a useful development tool.
This facilitates Bitcoin adoption in these countries which people can use as digital money through which they can make transactions over the internet.
All they need to get connected to a Bitcoin network is a smartphone and an internet connection.
This gives the virtual currency a lot of value and utility.
Therefore, many people in the developing nations, especially the younger generation, purchase Bitcoin from different platforms.
When it comes to trading them, people can do it easily and comfortably without the need of any intermediaries that slow down the process and also eat away a major part of the profits.
All they need is a digital wallet and store their private keys that give them access to their wallets safely.
Therefore, Bitcoin offers a lot of benefits to the people as well as the businesses in the developing nations.
This explains why the adoption rate of Bitcoin is so high.
Now, a closer look at the impact created by Bitcoin both on the developed and developing countries will make things much clearer to you.
In the developed countries, crypto coins such as Bitcoin are typically considered as a speculative investment that will help to counter inflation.
However, these are often met with doubts in the financial world in particular where conventional traditional philosophies surrounding centralized finance still reigns supreme.
In this specific sector Bitcoin is considered to be an extremely volatile fad and a dicey endeavor.
The crypto enthusiasts are however free to take part in the crypto economy according to their liking.
However, in these countries the regulations surrounding crypto differ and the people engaged in this space are continually seen to push back against the regulators.
On the other hand, people in other countries such as Nigeria, where a significant part of the population rely on crypto to deal with the financial challenges, often find that the freedom to transact with crypto is not easy to come by.
The situation grew even worse when the Nigerian government banned cryptocurrencies in 2021 instead of placing warnings or regulations on them.
This created a seemingly unassailable roadblock in the way for the people to attain financial freedom enabled by crypto.
In the developing countries, however, crypto and Bitcoin seem to be building deeper roots especially in those regions that are historically known for financial instability and inflation.
Take Africa for example. The rate of adoption of Bitcoin in this region is quite high and this has made Africa the next frontier for crypto, according to a statement of the United Nations.
According to a report by Reuters, the small business owners here in Africa have found an easy way to protect their businesses against inflation or currency devaluation as well as boost their business profits simply by paying their suppliers in Bitcoin.
The best part is that the businesses do not need to spend additional money as fees to buy dollars with Nigerian naira.
They do not even need to use the services of any money transfer businesses and pay commission to them for that.
Bitcoin transactions for them are much safer, faster, and, more importantly, cheaper.
Simply put, use of Bitcoin by the people living in the developing countries has enabled them to break away from the manacles of poverty or, at least, has helped them to steer the challenges that are typically associated with the developing countries.
Apart from enabling the people in the third-world countries to do away with the inefficacies linked inextricably to the conventional financial systems and the gaps, access to blockchain technology crypto have also allowed them to overcome currency instability as well as financial inequality issues.
Apart from that, it has also enabled the people to improve their standard of living because Bitcoin has helped the middle and low income earners significantly in the developing regions.
This is because use of Bitcoin reduces transaction costs and increases the speed of transferring funds across the globe.
And, Bitcoin and crypto allow the small businesses in these developing countries to trade globally.
It has provided them with an easier and safer path to receive and send funds without needing to endure the bureaucracies of the conventional financial systems, helping the economy on the whole.
Helping the Unbanked
Bitcoin helps the unbanked people to bank in the developing countries because the decentralized infrastructure helps them to access different useful financial services that were unavailable to them for so long.
Since the percentage of unbanked people is high in countries with less stable economies, their increased access and use of financial services eventually helps the economy on the whole.
These unbanked people now do not need to pay the high costs charged by the banks and financial institutions for accessing and using their services.
This is a significant advantage to the financially disadvantaged people.
Now, they do not even have to maintain any minimum balance or require making any initial deposits.
They do not even need to pay membership or withdrawal fees.
In most of the countries the traditional financial systems are also less developed and may also be involved in corruption.
Now, with Bitcoin and crypto being accessible, they do not need to rely anymore on a financial system that they do not trust.
The primary reason for the unbanked individuals remaining unbanked not only in the developing countries but also in developed countries such as the United States is the lack of money.
Typically, the services offered by the banks and financial institutions are not easily accessible for the lower-income households.
This exacerbates the inequality issue even further between the banked individuals and the unbanked.
Bitcoin is pretty much efficient in reducing this inequality by bridging the gaps created by the traditional financial systems.
It even allows the unbanked people to take full control over their finances without needing to deal with the often debilitating fees and other pecuniary requirements.
Helping the Economy
Crypto and Bitcoin in particular help in a lot of ways in improving the economy of the developing countries apart from helping it in combating inflation.
The most significant benefit offered by crypto to the developing countries that tops the list is financial inclusion.
But, that is not all. It also helps the individuals in the developing countries to leverage trading crypto and Bitcoin as well as save money by lowering the transaction fees.
As for the help offered to the small businesses in the developing countries, crypto and Bitcoin facilitate trading on a global scale much more easily, safely, and conveniently by using them as a payment system.
As you may know, corruption in the third-world and developing countries is one of the primary drives of poverty.
There is a distinct and a positive correlation between these two, as it is pointed out by a research report of an anti-corruption NGO, Transparency International.
According to the report, corruption deprives the citizens as well as the country on the whole from the necessary funds that could have been spent otherwise on infrastructure, crisis response, healthcare, and more.
This drives the country, which is already poor, further deep into poverty.
It can even drive the nation into recession and balloon the public debt thereby causing the economy of the country to stagnate.
Bitcoin and crypto can help reduce corruption by promoting transparency in transactions and maintenance of records for the same.
Singapore has set an example for it being successful in eliminating poverty by getting rid of corruption in the first place.
Eliminating corruption in the system will be very easy for the developing countries with the use of blockchain technology which is transparent and distributed.
This reduces, if not eradicates completely, the chances of frauds and manipulations.
Therefore, Bitcoin and crypto can revitalize the economy of a country which may open the path for foreign investments that will eventually boost up economic development.
Even the governments can be held answerable because the immutable records maintained on the blockchain network are accessible to the general public.
This means that there is no chance of altering or forging the records of government spending on different initiatives and projects, and people can easily track them.
Moreover, if the funds are not spent for the purposes that it is intended for, even an authorized person may be barred from using the money.
Bribes are commonplace in the government sector but blockchain technology can reduce it significantly and even handle a long-drawn corruption investigation with ease and with just a single click.
All these promote transparency because the data is stored in different computers, called nodes, and spread across.
This eliminates the chances of loss of data as well. Since all data is encrypted, it also improved data integrity and security while allowing traceability of it.
Crypto and DeFi projects based on blockchain technology allow the citizens of the developing countries to avail financial services and opportunities such as investments and loans.
These can now be availed even by the unbanked individuals.
People can make smaller investments and take smaller loans without the need of any documentation or a bank account.
All they need to have is a digital wallet and the blockchain technology will make everything accessible for free.
These micro investments and micro loans invariably distribute the risks between the individual lenders.
Most importantly, crypto does not need a costly physical infrastructure.
This is specifically beneficial for the developing countries helping them in a better and greater financial inclusion that will act as a competent tool to diminish poverty.
Remittance fees and time are also significantly reduced with the use of Bitcoin and crypto, thanks to the blockchain network once again.
Typically, the residents of developing countries need to work overseas and send money to their family at home.
While using traditional financial systems may charge high transaction fees by as much as 10% of the entire amount remitted, the crypto-based platforms typically charge around 2% to 5%.
This is a significant amount of money saved.
According to a report, nearly 26% of the GDP of Haiti comes from the remittances sent by the citizens working overseas such as in Canada, the United States and the Dominican Republic.
Remittance fees here can be as high as 8 to 10% resulting in an income of hundreds of millions of dollars in fees alone for the country.
For a worker with low income or one who has just started to save money, reduction in transaction fees can be of significant help and amount.
Usually, when it comes to remittance through blockchain technology, the money is sent by the worker in another country through an app or a platform which is converted into Bitcoin and sent across to the receiver through blockchain.
Then again it is converted into the local currency by the receiver. The entire process is very convenient for both the receiver and the sender.
Finally, Bitcoin and crypto along with blockchain technology can help the developing countries in combating inflation in a significant way.
Inflation is typically described as the devaluation of fiat currency. At the same time, it also signifies the increase of the prices of goods and services in the country.
It is a significant threat to the country and its economy on the whole and it continues to effervesce under the surface.
In such a situation, people usually turn towards specific crypto coins such as Bitcoin to protect their money from inflation.
This is because Bitcoin is supposed to be able to maintain its value over time, if not increase.
Therefore, like gold, Bitcoin can help in combating inflation.
However, the fact that Bitcoin is more accessible than gold makes it a better alternative as a hedge against inflation.
It is also favored a bit more because it has a finite supply of 21 million.
This means that it is quite inflation-resistant. Therefore, Bitcoin is believed to weather even during recessions.
The governments in the developing countries are using Bitcoin and blockchain technology in several different ways.
Here are a couple of significant use cases of Bitcoin due to its high rate of adoption that is exemplified by the blockchain technology in the developing countries.
Some governments in the Asian countries use blockchain technology in land titling.
Some other use cases of this technology include the healthcare industry and supply chains.
Crypto is used in Kenya, for example, by some B2B logistics platforms to offer microloans to the food stall merchants in the country.
This helps these vendors to grow their business, buy more materials, and in a lot of other ways.
A lot of countries have also started to accept Bitcoin as a mode of payment which makes it easier and faster for businesses to operate.
All these specific use cases eventually affect the economy of the developing country which inevitably helps them to counter inflation.
The adoption of Bitcoin in the developing countries is due to the inadequacies of the conventional financial systems.
This has affected people and businesses in these countries in more than one way due to its benefits as pointed out by this article.