For Foreign Workers in the UAE, Crypto Remittances Could Be a Bridge to Financial Stability – News

With cryptocurrencies, large amounts can be sent without incurring large fees

The UAE has a long history of rapidly adopting technology and assessing its long-term economic growth potential. Like its Arab Gulf neighbors, the country is pursuing an aggressive economic diversification plan to reduce its dependence on oil. AI, 5G, IoT, blockchain, and more are all being used to optimize operations, cut costs, or otherwise enhance an organization’s ability to compete in domestic markets or on the world stage.

The country’s relationship with cryptocurrencies is a similar story. In 2016, Abu Dhabi established a crypto-friendly regulatory sandbox. Just this year, Dubai established one of the most extensive and advanced cryptocurrency licensing systems in the world. Since the advent of crypto, the UAE government has shown a willingness to support the industry in overcoming challenges, assessing its relationship with regulators and trying to encourage investors. For some time now, there has been a heated debate around the world around the nature of cryptocurrencies. Can it claim to be a true medium of exchange, as its proponents claim, or is it merely a vehicle for speculative investment? This debate is repeated whenever cryptocurrency prices fall (as they have recently), with many asking how cryptocurrencies can benefit people without large portfolios. What role does cryptocurrency play in day-to-day work and family commitments? For the UAE at least, there is one clear example. Remittance abroad.

About 90 percent of the UAE’s population is migrants, most of whom come to the country to earn a living wage, a significant portion of which can be sent home to be with their loved ones. They are temporary workers from India, Pakistan, Bangladesh, the Philippines and other countries. They are looking for the economic opportunities that the UAE offers.

Remittances are pretty much their unique way of getting those funds back to their families. A recent survey revealed that two-thirds of UAE residents have increased the amount of money they send home by 2022, with more than half (51%) saying their families would struggle to get by without the remittances they receive. Despite the survey finding the need to send money, many money senders in the UAE remain concerned about the speed of transactions, with 54% citing the 24-hour remittance window as a top priority.

In addition to speed, money transfers come with fees that affect both the sender and the recipient, especially when the goal of the transaction is to pay for daily necessities within the country. Historically, one of the attractions of cryptocurrencies has been their ability to reduce transaction costs and times. India, the main recipient of remittances from UAE workers, is the prime example here. According to the World Bank, senders of money sent from the UAE to India can be charged between 0.71% and 11% (the range is really wide), and it can take anywhere from a few hours to a few days for the funds to reach the recipient. Not surprisingly, senders often have to make a trade-off between fees and delivery times, with cheaper deals meaning longer wait times.

Cryptocurrencies are not. Large amounts can be sent without incurring large fees. Let’s look at an example. USDT_TRX is a USD-pegged token built on the TRON network, one of the fastest and cheapest blockchains in operation. In a transaction to send $485.72 (converted to 485.72 USDT_TRX) between two wallets, the sender paid a fee of 0.01% (7 cents or 13.704 TRX). TRON transactions take less than a minute to complete, meaning recipients have almost instant access.

Hence, this crypto transaction is verified to be faster and cheaper than any remittance option currently available for UAE to India transactions. The implication for the UAE is that there is an opportunity to expand financial services for people who currently rely on traditional fiat currencies for remittances. UAE senders told researchers they were looking for speed and cost efficiency. Crypto payment providers have the ability to offer both. This will result in the workforce having more disposable income, which can be spent or saved. If remitters choose the former, this will directly lead to GDP growth.

Nicola Buonanno, Regional Vice President, EMEA South, Chainaanalysis. — Photo provided

Notably, at this stage Chainaanalysis has seen a surge in the number of UAE workers using cryptocurrencies for remittance payments. Our data shows that the number of transfers from the UAE for amounts below $1,000 (which is the traditional remittance payment range) is expected to increase over the past three years.

We’ve already seen the UAE taking action on the potential of cryptocurrencies for overseas remittances. The country has partnered with some of the largest recipients of funds on cryptocurrency remittance projects. In 2021, the National Bank of Egypt and decentralized payment provider RippleNet announced a partnership to build a payment corridor to the UAE’s LuLu International Exchange. Recently, the Central Bank of the UAE launched a joint project with India to build a central bank digital currency (CBDC) bridge. Authorities cite faster remittances as one of the main drivers of the project.

All of this is a space to watch. Given the high proportion of foreign workers in the country, the UAE is likely to launch similar projects in the coming years. Soon, its employees and their families will have broader representation in the global financial system and will be better able to take advantage of the real-world benefits of cryptocurrency remittances that were previously out of reach.

The author is Regional Vice President, Europe, Middle East and Africa Southern, Chainaanalysis.