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COVID-19, cryptocurrency, currency devaluation, depreciation, digital remittance, exchange rate, international remittance, lock-in, immigration, rich oil, remittance, World Bank
According to a new report, the depreciation of certain currencies against the U.S. dollar has led to a decrease in international remittances. After reaching an all-time high of US$548 billion in 2019, the World Bank report now expects remittances to fall by 7.2% to US$508 billion by 2020, and a further 7.5% to US$470 billion in 2021.
The World Bank detailed in its “Migration and Development Brief 33” how the currency devaluation caused by Covid-19 affects global remittance flows. In the abstract, the author pointed out the exchange rate between the U.S. dollar and the source currency of the remittance. The report details how this affects the flow of remittances from Russia:
Since the beginning of 2020, the ruble has depreciated against the U.S. dollar by more than 26%, thereby reducing the remittance of U.S. dollars from Russia. As a result, remittances to Central Asia have been greatly reduced.
World Bank data does predict that remittances in Europe and Central Asia will fall by 16% by 2020 (the largest in the world). On the other hand, the flow of remittances to Latin America and the Caribbean only dropped by 0.2% in 2020.
Despite this, the report still refers to the other “most important factors” driving this decline as “weak economic growth and employment uncertainty”, especially in the United States and European countries. However, for oil-rich countries such as Saudi Arabia and Russia, it is the weakening of commodity prices that has reduced the flow of remittances.
At the same time, after detailing the impact of Covid-19 and related liquidity restrictions, the World Bank report continues to claim that even in difficult times, the formal recognition of “digital remittances” will help keep funds flowing. The report continues:
“The government must support the remittance infrastructure, including acknowledging that remittance services are essential, reducing the burden of immigrants’ remittance costs, incentivizing digital currency transfers, and reducing the factors that prevent digital remittance customers or service providers from accessing bank services.”
Although the World Bank report fails to clearly indicate that cryptocurrency is one of the digital remittances touted, research and reports have shown that the use of crypto assets is increasing when certain immigrant groups send money.
For example, a report by news.Bitcoin.com indicated that cryptocurrencies are increasingly used as a tool for cross-border remittances. Another report also showed that after the country imposed blockade restrictions, the volume of peer-to-peer trade increased significantly.
Covid-19 restrictions may inadvertently increase the attractiveness of cryptocurrencies. The second wave of growing infections and the resulting restrictions will only strengthen their position in this new normal. As suggested by the World Bank, countries can reduce the impact of such restrictions by accepting digital remittances.
Do you agree that digital remittance can prevent the decline of funds? Tell us what you think in the comments section below.
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