Angus Deaton was recently awarded the 2015 Nobel Memorial Prize in Economic Sciences. Deaton is renowned for his analysis of consumption, poverty and welfare. In his work, Deaton asserts that foreign aid from donor countries is a waste because it does not help the developing countries. Instead, he affirms, remittances do help. Specifically, Deaton addresses the effects of migration on poverty reduction. In this regard, Deaton underlines the positive effects of remittances to help the poor. This is exactly the point where Deaton’s theories and Bitcoin intercept. Indeed, remittances are an area in which Bitcoins and the blockchain technology are most suited to help. Bitcoin, in many ways, including remittances, is already making a contribution to the prosperity of many of the underprivileged in the developing world.
Remittances Help the Poor
People migrate for many reasons, such as escaping poverty, finding freedom, or just to save their lives. But regardless of the reason, most people migrate to richer countries in search of brighter futures.
According to a World Bank report, “more than 250 million people live outside their countries of birth, and over 750 million migrate within their countries. Remittance flows to developing countries are estimated to have totaled $436 billion in 2014, an increase of 4.4% over the previous year. Global remittance flows, including those to high-income countries, were an estimated $583 billion in 2014.”
Today, as we see in the news media, economic migrants are not the only people crossing the borders into developed countries. In fact, the number of victims trying to escape to safety from human rights violations is reaching unprecedented levels. For example, “By end-2014, 59.5 million individuals were forcibly displaced worldwide as a result of persecution, conflict, generalized violence, or human rights violations. This is 8.3 million persons more than the year before (51.2 million) and the highest annual increase in a single year,” according to a report issued by the United Nations High Commission for Refugees (UNHCR).
As of press time, European leaders are having trouble responding properly to the migration crisis, as thousands of migrants and refugees from Africa and the Middle East continue to stream into Europe.
One of the main aspirations of any migrant is to help family members left behind. Deaton stresses this fact when he concludes,
“Migrants who succeed in moving from poor countries to rich countries become better off than they were at home, and their remittances help their families to do better at home.”
In 2013, Deaton described these findings in his book, The Great Escape: Health, Wealth, and the Origins of Inequality. Deaton’s research also finds that foreign aid given to developed countries is ineffective, and what really helps are remittances. Specifically, Deaton proposes, “Remittances have very different effects than aid, and they can empower recipients to demand more from their government, improving governance rather than undermining it.”
Remittances and Bitcoin
However, the problem with remittances sent using fiat money is that they are very expensive and inefficient. Recipients have to pay for Western Union, MoneyGram, or other money transfer operators, exorbitant transactions fees and disadvantageous currency exchange rates.
Now, thanks to Bitcoin’s speed and low transaction costs, disadvantaged Africans and many others living in third world countries can receive more value from their remittances when they are in the form bitcoins instead of fiat currency.
The number of companies that provide remittance services in bitcoin is rapidly increasing. Similarly, venture capital continues to flow to expand these companies. Let’s look at just a few examples.
Abra, for instance, is a digital cash, peer-to-peer money transfer network. In September 2015, Abra announced that it had raised over $14 million USD in venture financing. To open an account with Abra, you do not need to have a bank account. Abra sends its clients’ remittances instantly and conveniently anywhere in the world. Abra does not charge transfer fees. Interestingly, Abra is now testing the concept of using human ATMs, called Abra Tellers. Abra Tellers are individuals or businesses earning money by buying and selling digital cash to and from any consumer via the Abra App.
Rebit, a company of the Satoshi Citadel Industries (SCI), and ZipZap have announced a partnership to deal with flow of remittances that occur from Canada to the Philippines. The amount of remittances in this channel is estimated at $2 billion USD. In 2014, ZipZap raised $2.2 million USD in venture funding. ZipZap is a technology platform to transfer digital and fiat money around the world.
Similarly, Rebit.ph recently announced a new partnership with instant Bitcoin and altcoin exchange Shapeshift in September 2015. The purpose of this partnership is “to allow users to remit money, pay bills, buy prepaid credits, and cash out to Philippine pesos using any of the various altcoins on the Shapeshift platform,” says Miguel Cuneta, Co-Founder and Chief Community Officer of SCI.
In Africa, BitPesa announced that it had obtained $11 million in funds to expand its Bitcoin remittance services into Tanzania and Uganda. BitPesa already operates in Kenya.
Granted, many challenges remain before Bitcoin can become a premier remittance currency, like the threats of protectionism from central banks. Additionally, Bitcoin transfers may not yet be as cheap as possible, because fiat money is still involved in the remittance process referred to as the “first and last mile.” This issue is well described in the article Closing The Circle: Bitcoin And Remittances.
Nobel Prize winner Angus Deaton’s work shows that remittances help to improve the life of many in the developing world. Because of its attributes, Bitcoin is now an option, which is gaining popularity. As we can see, infrastructure and new bitcoin payment platforms are being made available to facilitate further the remittance process using bitcoins. In other words, migrants now have more ways to help those left behind to improve their standard of living.
Do you think Bitcoin will become the premier currency for remittances? Let us know in the comments below!
Deaton, A. 2013. The Great Escape: Health, Wealth, and the Origins of Inequality. Princeton: Princeton University Press.
Images courtesy of Pixabay
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