Sending money home can be an expensive business. But it doesn't have to be. Digital currencies offer the possibility of lower fees, giving rise to more frequent and cheaper transactions. This has implications for the FX world, particularly the dollar.

Shortly after Facebook announced the development of its own digital currency, Libra, policymakers around the world were quick to point out the potential pitfalls and risks of launching such a project on a global scale. Their immediate concerns relate to the disintermediation of the traditional banking system and the potential loss of monetary sovereignty. However, one unintended consequence is that it has greatly accelerated the debate on the development of digital currencies, including the possibility that central banks could launch their first pilot of Central Bank Digital Currency (CBDC) within the next five years. Is there an immediate link between digital currencies and markets and how could that play out?

 

Remittances could be an immediate use case for digital currencies

The global remittances market reached $689 billion in 2018 and will grow beyond $700 billion by the end of this year, according to World Bank estimates. The market is growing at an exceptional rate: if we exclude China, remittances now outpace foreign direct investment (FDI) flows. Moreover, the global average cost of sending remittances currently stands around 6.84%, which is relatively high. The rise of digital currencies could push transaction fees lower and give rise to more frequent and cheaper transactions.

 

Top 20 remittance recipient countries in 2019, US$bn (estimates)

Chart

 

The end of dollarisation?

So what does this mean for the currency market? Let’s take a look at Ukraine, which is a highly dollarised economy. The World Bank estimates that Ukrainian workers will send some $16 billion (11.8% of Ukraine’s GDP) back to their home country this year. Moreover, the total average cost for sending $200 of remittances from the US to Ukraine stands at around $9.90 (or 4.95%). This includes both the transaction fee and the exchange rate margin cost. The launch of either a private or a publicly-issued digital currency (e.g. the National Bank of Ukraine conducted an e-hryvnia pilot this year already) could compress both costs, which would offer Ukrainians another (digital) channel to send their remittances back to their home country. And if digital currencies are accepted by retailers at point-of-sale and on e-commerce platforms, this could in theory diminish dollar demand. To be sure, regulatory and policy challenges are unlikely to disappear but markets should start thinking about these issues and their immediate implications.

 

Read the original anlysis: Digital currencies: Keep an eye on remittances

Content disclaimer: This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more here: https://think.ing.com/content-disclaimer/

Cryptos feed

Latest Crypto News


Latest Crypto News & Analysis

Editors’ Picks

BCH/USD rollercoaster swings south to $215

Bitcoin Cash is wrecked after dropping like dead weight in the air. The entire crypto market is in bloodshed as volatility returns. BCH/USD has corrected lower by 3% on the day.

More Bitcoin Cash News

ADA/USD regains ground after sharp sell-off, further recovery is limited

Cardano (ADA) lost over 6.5% of its value on Thursday as the cryptocurrency market moved into red territory. At the time of writing, ADA/USD is changing hands at $0.1228 after a short-lived move to $0.1181.

More Cardano News

ETH/USD may face $200.00 amid growing bearish sentiments

Ethereum (ETH) experienced a sharp sell-off to the intraday low of $229.78 and recovered to $230.80 by press time. The coin has entered a recovery mode; however it is still vulnerable to a new shell-off below $230.00 as the bearish pressure remains strong. 

More Ethereum News

XTZ/USD drops like deadweight

Tezos is among the digital assets in the cryptocurrency market suffering in the hands of the bears. A reversal is underway with bulls scampering for support at $3.00. 

More Tezos News

BEST CRYPTO BROKERS/EXCHANGES

Bitcoin Weekly Forecast: BTC volatility drops to a year low, get ready for a spiral drive

The week was tough for the cryptocurrency markets confined to tight ranges. Bitcoin has lost 1% of its value during the recent seven days with the trading range limited by $9,298 on the upside and $8,933 on the downside.

Read the weekly forecast

BTC

ETH

XRP