- June 12, 2021
- Posted by: Progress Ibrahim
- Category: Blockchain
Imagine living in a country where you have access to almost all things. You have access to the financial system such as having a bank account.
You have the right to conduct a business that has a disruptive revenue model. Having the freedom to experiement ideas that will contribute to the real growth of the economy?
On the other hand, imagine you are in a country that lacks many things. The country has an undeveloped financial system, there is a problem of financial inclusion.
70% of the population is unbanked. Do you think you will be able to thrive in such a country?
To solve the problem of economic development is to address the financial inclusion problem. This is the story of a country called El Slavador, it has a huge problem of financial inclusion.
30% of the population are banked and 70% of the country is unbanked. According to a speaker in the Bitcoin 2021 conference held in Maimi, 20% of the GDP of this country is from remittance source, and 50% of the remittance goes into fee servicing.
But, they want to become like other countries that don’t have financial inclusion problems.
In the Bitcoin conference, the president announced that Bitcoin will be made a legal tender. This is because with bitcoin the problem of financial inclusion, high rate of remittance, inflation due to devaluation of currency will be solved.
But, what are the gains or the impact of making bitcoin and other cryptocurrencies legal tender?
Ways Cryptocurrency Adoption can Speed Up Economic Development.
While El Slavador became the first futuristic country that believed that a country can solve her economic development problems by embracing technology, the problem the country is experiencing is very similar to other developing countries and emerging economies.
When it comes to inflation, it is a global problem that every nation should fix. Imagine an open and trustless monetary system, where currency supply is fixed, will there be inflation?
The potential of bitcoin can help countries to solve the following problems and more.
Financial Inclusion Effect:
Imagine what will happen to a country that has most of its population unbanked adopting crptocurrency as a legal tender. When it comes to cryptocurrency, you don’t need a bank account to be part of the financial system, all you need is access to the internet.
With access to the internet and software applications you will be able to use bitcoins and other coins.
This will give freedom to the people and security. The poor and crude standard of living will be gone. What does financial inclusion bring to an economy?
Financial inclusions bring an increase in economic activities to an economy, this will translate to growth in GDP. Do the economies of Africa need this solution? Your answer is the same as mine…
Economic Growth Effect:
According to a UN report, remittance to Africa has a 10% average fee rate. That means for every $1b remmitance inflow would decrease by $1m.
This is a loss to the economy, and it will have a ripple effect on the economy. Imagine, a country like El Slavador that pays 50% of the remittance on fee. That means, the remittance to the economy is reduced by ½ due to the high rate of sending fiat money.
What crypto such as bitcoin does is that it makes cross border payment less expensive and efficient. What will take 10% can now be less than 2% . A transaction that is supposed to take 3 days will now take minutes.
This gain in efficiency will generate gain in productivity which will lead to economc growth? Do Africa and Asian countries need this life changing innovation?
Technological Innovation Effect:
One of the direct impacts of the adoption of crypto, especially bitcoin as legal tender by a country, is the increase in technological innovation. A country that is friendly to blockchain and crypto innovation will surely attract the best tech brains.
This will become a network effect, which will lead to the country to become a pioneer in that industry. I can imagine the level of innovation that will be coming from the country of El Slavador, because many tech talents will be opening offices there.
What will this have on the economy of El Slavador?
Entrepreneurship Explosive Effect:
Joseph Schumpeter, a legendary economist believed that the engine of economic growth is innovation. When innovation is added to entrepreneurship, it will create real growth to the economy.
The government of El Slavdor had a foreign policy to offer a permanent citizenship to cryptopreneurs with a requirement of having 3 BTC.
When the effect fully matures, the economy will reap the benefits of reduction of unemployment, growth in productivity and economic activities, reduction in crime etc. When people have what to do, there will be less idle time to get involved in crime and social vices.
Can you see that to solve the problem of economic development technology is the sure solution.
However, while making bitcoin a legal tender will be a great stride by countries as the benefits are too great but, implementing policies to maximize the benefits are far more important. What policies will your country adopt to maximize or optimize the benefits of making crypto a legal tender?.
Here is an article that explains how to use ERC20 USDT and TRC20 USDT.