In a world where financial borders are becoming increasingly blurred, the role of cryptocurrencies in facilitating cross-border transactions has gained significant attention. For Nepali migrant workers, who contribute substantially to the nation’s economy through remittances, cryptocurrencies could prove to be a transformative tool, offering faster, cheaper, and more secure money transfers.
However, Nepal’s current stance on cryptocurrencies presents a hurdle that needs to be addressed. Nepal heavily relies on remittances from its large diaspora of migrant workers, with these funds accounting for over a quarter of the country’s gross domestic product (GDP).
In the fiscal year 2021-2022, remittances reached a staggering $8.1 billion, highlighting the crucial role they play in supporting households and driving economic growth. However, traditional remittance channels often involve high fees, lengthy processing times, and a lack of transparency, hindering the efficient flow of these vital funds.
The promise of cryptocurrencies and Nepal’s perspective
Cryptocurrencies like Bitcoin and Ethereum give a different way to send money across borders without needing traditional banks. They work fast and are secure because of something called blockchain. This means transactions happen quickly and without high fees. For people who do not have bank accounts, like many Nepali workers, using cryptocurrencies can be helpful. It is easier for them to receive and manage money. Also, because of the way cryptocurrencies work, it is harder for someone to cheat or steal money during transactions. This makes it safer for everyone involved.
Imagine you are a Nepali worker living in the UAE, and your family relies on the money you send home every month. With traditional banking, sending money can take days, and the fees can eat up a big chunk of what you are trying to send. But with cryptocurrencies like Bitcoin or Ethereum, it is different. When you send money back home using Bitcoin, for example, the transaction is recorded on a blockchain, which is like a digital ledger that can not be changed. This means the money gets to your family almost instantly, and because there are no banks involved, the fees are much lower.
Now, let’s say your family does not have a bank account. They might struggle to receive the money you send through traditional channels. But with cryptocurrencies, they do not need a bank account. They can use a digital wallet, which works like a virtual bank account to receive and manage the money you send. And here’s the best part: because of the way cryptocurrencies work, it’s much harder for someone to steal or cheat during the transaction.
The blockchain technology makes every transaction transparent and secure, so you can trust that your money will get to your family safely. So, whether you’re sending money to support your family or receiving money from abroad, cryptocurrencies offer a faster, cheaper, and more secure way to handle cross-border transactions.
While the potential benefits of cryptocurrencies for remittances are clear, Nepal’s current stance on digital currencies presents a significant obstacle. In 2017, Nepal Rastra Bank (NRB), the country’s central bank, issued a notice prohibiting the use, trading, and mining of cryptocurrencies, citing concerns over their potential for money laundering and financing of illegal activities. However, this stance may be shifting as the global adoption of cryptocurrencies continues to grow.
In 2021, the NRB formed a committee to study the potential use of cryptocurrencies and develop a regulatory framework to govern their use in the country. To fully realize the benefits of cryptocurrencies for remittances, Nepal must consider a well-regulated and balanced approach that addresses legitimate concerns while harnessing the potential of this innovative technology.
Global success stories
Cryptocurrencies have shown great potential in improving the lives of migrant workers and their families by facilitating remittances. Countries like El Salvador, the Philippines, and Nigeria have already embraced cryptocurrencies as a remittance tool, demonstrating their benefits in terms of lower fees and faster transaction times compared to traditional remittance channels.
El Salvador, for example, became the first country to officially recognise Bitcoin as legal tender in 2021, aiming to facilitate remittances from Salvadorans living abroad. This move aimed to increase the value of remittances reaching Salvadoran households by eliminating intermediary fees and enabling instant transfers.
The Philippines, a nation with a large diaspora of overseas workers, has witnessed the growth of cryptocurrency remittance services. Companies like Coins. ph and Remitano offer lower fees and faster transaction times compared to traditional remittance channels, benefiting both migrant workers and their families back home
In Nigeria, where remittances account for a significant portion of the country’s foreign exchange earnings, cryptocurrencies have emerged as a popular alternative to traditional money transfer services. Companies like Bundle and Binary Transfer have capitalized on this demand, providing low-cost and efficient remittance solutions powered by digital currencies
Moreover, cryptocurrencies offer several advantages over traditional remittance services, such as accessibility, speed of transactions, lower transaction fees, financial inclusion, and the ability to mitigate the impact of inflation in remittance-receiving countries
Governance and regulation
Governance and regulation play pivotal roles in ensuring the responsible adoption and use of cryptocurrencies for remittances. It is imperative to establish a robust regulatory framework that addresses concerns over money laundering, terrorist financing, and consumer protection through clear guidelines and oversight. One potential governance measure is the implementation of a licensing and registration system for cryptocurrency exchanges and remittance service providers. This would ensure compliance with anti-money laundering (AML) and know-your-customer (KYC) regulations, promoting transparency and accountability in the industry.
Another important aspect is consumer protection. Establishing measures such as dispute resolution mechanisms and insurance schemes would safeguard the interests of migrant workers and their families who utilize cryptocurrency remittance services. Moreover, clear guidelines for the taxation and reporting of cryptocurrency transactions are necessary to ensure compliance with existing financial regulations and prevent tax evasion. Collaboration with international bodies and countries that have successfully adopted cryptocurrency remittance solutions could provide valuable insights and best practices for Nepal’s regulatory framework.
Engaging with such entities can help in shaping effective governance measures and addressing regulatory challenges in the cryptocurrency remittance sector. As the world continues to embrace digital innovation, cryptocurrencies offer a promising solution to the challenges faced by Nepali migrant workers and their families in remitting funds.
By leveraging the speed, cost-effectiveness, and security of these decentralized digital assets, Nepal could unlock significant economic benefits and improve the lives of its diaspora. However, to fully harness the potential of cryptocurrencies for remittances, Nepal must take a proactive stance in developing a robust regulatory framework that balances innovation with prudent oversight. By addressing legitimate concerns while embracing the transformative potential of this technology, Nepal can position itself as a leader in the digital remittance space, ensuring that the hard-earned money of its migrant workers reaches their loved ones efficiently and securely.
