Cryptocurrency remittances are a lifeline for Afghans after the abrupt withdrawal from the United States led Western Union to temporarily cease operations and the country’s banks to severely limit withdrawals.
As regulators in remittance source countries like the US and UK turn to crypto, they should be reminded of how essential these currencies are to some of the world’s most vulnerable people.
Crypto will become increasingly indispensable as local currency – in Afghanistan and elsewhere – becomes not only difficult to access, but unreliable as a store of value. Conflicts fuel inflation, which makes currencies less valuable, sometimes worthless.
If we regulate cryptocurrency transfers to appease the crypto hawks at home, we risk turning our backs (again) on those who need this asset class the most: the Afghan people and many more. others like them.
For remittances to continue to be a lifeline, they need to be fast. When money is needed, it is often needed instantly.
The Taliban takeover also frees up the Afghan financial system. Foreign aid has stopped, which represents about 40% of Afghanistan’s GDP, according to the World Bank. Likewise, the Afghan central bank’s foreign exchange reserves were frozen, amounting to around $ 9 billion.
Additionally, in response to the Taliban takeover and the halt in foreign aid from Western countries, international money transfer companies like Western Union and MoneyGram have shut down their services (in some cases they have resumed their activities, for now), leaving the average Afghan with no way out. engage with the global financial system and, most importantly, no way to receive remittances from relatives abroad.
Remittances, the practice of sending money ‘home’ from rich countries, accounts for around 4% of the country’s GDP. In an economy so heavily dependent on cash, the sudden collapse of local financial infrastructure could mean the difference between life and death for many Afghans.
For remittances to continue to be a lifeline, they need to be fast. When money is needed, it is often needed instantly. An internally displaced person, for example, cannot wait three to five days for funds to be released; they need food, fuel and medical supplies today.
Bitcoin’s “maximalists” are making outrageous claims about how crypto will change the global economic system. Believe them or not, we can see that crypto has already revolutionized remittances in volatile and conflict-ridden places. Afghanistan presents a handbook use case for cryptocurrencies in failed states.
Sometimes sheer necessity creates the strongest argument for new technologies. Afghanistan is 20th on the list of 154 countries in the Global Crypto Adoption Index formulated by Chainalysis, a blockchain data platform. After adjusting for peer-to-peer transactions (including remittances), it ranks seventh. In 2020, Afghanistan was not even on the list.
Afghanistan is not alone. The use of crypto has recently increased in Lebanon, Turkey and Venezuela. These people are not trying to get rich – they are just trying to receive funds from relatives abroad and keep their wealth from disappearing in a time of high inflation.
“A lot of people exploit and trade [cryptocurrencies] not to acquire products, but to protect against hyperinflation, ”observed Jhonnatan Morales, a crypto consultant based in Venezuela.
Venezuela, which has one of the highest inflation rates in the world (rising to 3,000%), has increasingly embraced cryptocurrencies as its economy falters.
Lebanon is another example: While the pound lost 80% of its value, Lebanese downloads from the Bitcoin wallet BlueWallet, for example, increased by 1781% year-on-year in 2020.
But Afghanistan is perhaps the most urgent and tragic case of why the countries of the South need crypto. As cash becomes scarce, prices skyrocket, and the Taliban lose the foreign aid the country previously depended on, the already crumbling Afghan currency will become even weaker. By allowing the Afghan people to receive, store and spend their bitcoin wealth, they may be able to protect themselves against the worst effects of a failed state.
And that’s what we need to remember when we regulate cryptocurrencies in the West. This regulation will not only affect speculators; it will hit those who want to send funds “home”. Those who receive remittances have the most to lose.
When Federal Reserve Chairman Jerome Powell releases his report on the next step in cryptocurrency regulation, I hope he won’t forget those who need it most: the Afghan people – and millions of people around the world like them.
While the West may have turned its back on the Afghan people, we must ensure that our laws do not continue to leave them in the dark. We need cryptocurrency regulations that ensure these vital financial lifelines are not lost. If we do, we close another door of hope for those who need it most.