Crypto Remittances: A Lifeline for Vulnerable Populations

The Critical Role of Cryptocurrency Remittances for Afghanistan

Following the withdrawal of U.S. forces, Afghanistan has faced a severe economic crisis. The abrupt suspension of operations by Western Union, coupled with significant restrictions on bank withdrawals within the country, has created a critical need for alternative financial pathways.

As regulatory bodies in nations that commonly send remittances, such as the U.S. and the U.K., increasingly scrutinize cryptocurrencies, it’s vital to acknowledge their essential role for some of the world’s most vulnerable populations.

The Increasing Indispensability of Crypto

The importance of cryptocurrency is set to grow as the local Afghan currency not only becomes harder to obtain but also proves unreliable as a means of preserving value. Armed conflict invariably leads to inflation, diminishing the worth of currencies – sometimes rendering them entirely valueless.

Imposing strict regulations on cryptocurrency transfers to satisfy domestic concerns risks abandoning those who depend on this asset class the most, notably the Afghan people and countless others facing similar circumstances.

The Frozen Financial System and the Remittance Gap

The Taliban’s assumption of power resulted in the freezing of Afghanistan’s financial infrastructure. A substantial portion of Afghanistan’s GDP – approximately 40%, as reported by the World Bank – is comprised of foreign aid, which has now been suspended.

Furthermore, roughly $9 billion in foreign reserves held by the Afghanistan central bank have been frozen. This situation has been exacerbated by the temporary suspension of services by international money transfer companies like Western Union and MoneyGram, cutting off many Afghans from the global financial system.

Remittances: A Vital Economic Lifeline

Remittances, the sending of money from abroad, constitute around 4% of Afghanistan’s GDP. Given the country’s heavy reliance on cash, the sudden collapse of its financial infrastructure poses a life-or-death threat to numerous Afghans.

For remittances to continue providing essential support, they must be delivered swiftly. Individuals in urgent need cannot afford to wait days for funds to clear; they require immediate access to food, fuel, and medical supplies.

Crypto as a Revolutionary Solution

While some “Bitcoin maximalists” predict a complete overhaul of the global economic system through crypto, its transformative impact on remittances in unstable and conflict-affected regions is already evident. Afghanistan serves as a prime example of the potential benefits of cryptocurrencies in states experiencing governmental failure.

Often, pressing necessity provides the strongest justification for adopting new technologies. Afghanistan currently ranks 20th out of 154 countries on Chainalysis’ Global Crypto Adoption Index. When adjusted for peer-to-peer transactions, including remittances, it climbs to seventh place – a significant rise from being absent from the list in 2020.

Global Trends in Cryptocurrency Adoption

Afghanistan is not an isolated case. Increased cryptocurrency usage has been observed recently in countries like Lebanon, Turkey, and Venezuela. The primary motivation for individuals in these nations is not wealth accumulation, but rather the ability to receive funds from family members abroad and safeguard their assets against the effects of high inflation.

As Venezuelan crypto consultant Jhonnatan Morales noted, “Many people are mining and trading [cryptocurrencies] not to acquire products, but to protect themselves from hyperinflation.”

Venezuela, grappling with one of the world’s highest inflation rates (approaching 3,000%), has seen a growing adoption of cryptocurrencies as its economy falters.

Lebanon provides another illustration: with the lira losing 80% of its value, downloads of the bitcoin wallet BlueWallet increased by 1,781% year-on-year in 2020.

The Urgent Need for Crypto in Afghanistan

However, Afghanistan represents the most critical and heartbreaking case for why the Global South requires access to crypto. As cash becomes scarce, prices escalate, and foreign aid diminishes, the already fragile afghani currency will continue to weaken.

Enabling the Afghan people to receive, store, and spend their wealth in Bitcoin could offer a crucial means of protection against the devastating consequences of a failing state.

The Implications of Western Regulation

This is a crucial consideration as Western nations formulate regulations for cryptocurrencies. Such regulations will not solely impact speculators; they will also affect individuals seeking to send remittances “back home,” and those who rely on these funds will bear the greatest consequences.

When Federal Reserve Chairman Jerome Powell releases his report on the next phase of cryptocurrency regulation, it is imperative that he remembers those who stand to benefit the most: the Afghan people, and millions of others worldwide facing similar hardships.

While the West may have distanced itself from the people of Afghanistan, we must ensure that our laws do not further isolate them. We need cryptocurrency regulation that preserves these vital financial lifelines. Failure to do so will close yet another door of hope for those who need it most.