Synopsis
Cryptocurrencies can promote financial inclusion through low entry barriers, a decentralized nature, cross-border transactions, access to credit, empowering the unbanked, and as a store of value. They offer an alternative for people who lack access to traditional banking services due to financial or geographical constraints and can reduce the cost of financial transactions, making them more affordable for low-income individuals and small businesses.
Cryptocurrencies have the potential to revolutionize the financial industry by offering decentralized and secure transactions and promoting financial inclusion. They can play a significant role in areas where traditional banking services are unavailable or inaccessible by bridging the gap and providing access to financial services to those left out.
How can Cryptos promote financial inclusion?
Low entry barriers
Cryptocurrencies have easy-to-meet requirements for entry, such as a smartphone or internet access, compared to traditional banking services. This means that people who may not have access to traditional banking services due to financial or geographical constraints can still use cryptocurrencies. For example, someone in a remote area without a bank branch can use cryptocurrencies to send and receive money without traveling long distances.
Decentralized nature
Cryptocurrencies are not controlled by any central authority or traditional financial institution, making them independent of the banking system. For example, in countries with a history of corruption or an unreliable banking system, cryptocurrencies can be a valuable alternative for individuals to store and transfer their wealth without relying on traditional banking institutions.
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Cross-border transactions
Cryptocurrencies can help people send money to their families living in other countries. They can also reduce the cost of financial transactions, making them more affordable for low-income individuals and small businesses. Traditional financial institutions often charge high fees for cross-border transactions, which can be a significant barrier for people living in developing countries. However, cryptocurrencies can facilitate borderless transactions with minimal costs, enabling people to send and receive money globally.
For example, suppose someone lives in the United States and wants to send money to their family in India. In that case, they can use a cryptocurrency to send it directly to their family member’s digital wallet. This is faster and cheaper than traditional methods like wire transfers or money transfer services.
Providing access to credit
In many parts of the world, traditional banking systems are inadequate or non-existent, leaving people without access to essential financial services like loans, savings accounts, and insurance.
Cryptocurrencies can provide these services through decentralized applications (DApps) that operate on blockchain networks. For example, DApps like AAVE, Compound, and MakerDAO allow users to earn interest on their cryptocurrency holdings or borrow against them without needing a traditional bank account. As a result, people can borrow money using their cryptocurrency as collateral without worrying about meeting traditional banking requirements.
Empowering the unbanked
Cryptocurrencies can give people who don’t have access to banks the power to control their own money. For example, imagine a farmer in a remote village who doesn’t have a bank account. With cryptocurrencies, they can store and manage their money using a digital wallet on their phone without relying on a traditional bank.
Store of value
Cryptocurrencies can also store value for those who live in countries with high inflation rates or unstable economies. Cryptocurrencies are not tied to any government or financial institution, and their value is determined by supply and demand. This means that they can provide a stable store of value in volatile markets, allowing people to protect their savings from inflation and economic turmoil.
Conclusion
In conclusion, cryptos have the potential to promote financial inclusion by providing access to financial services, reducing the cost of transactions, and providing a stable store of value.
However, for cryptocurrencies to reach their full potential, governments and financial institutions must work together to create a regulatory framework that ensures consumer protection, prevents money laundering, and promotes innovation. With the right policies, cryptocurrencies can play a significant role in promoting financial inclusion and creating a more equitable financial system.
(The author is CEO and Co-founder of Mudrex, a global crypto investing platform.)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
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