Bitcoin enthusiasts suggest the use of Bitcoin in settling remittances between the U.S and Mexico after Trump’s proposal to build a wall between the two countries will have been realised.
On April 5, Billionaire real estate tycoon and Republican front runner Donald Trump unravelled his plans to compel Mexico pay US$5 to US$10 billion for the border wall between the United States and Mexico which Trump aims to build at the start of his presidency.
Economic damage to Mexico
One major issue which Mexico could face upon the creation of Trump’s border wall is a substantial damage to the country’s economy or gross domestic product (GDP).
According to the World Bank, remittances from the United States account for nearly 2% of the country’s GDP.
Thus, restricting Mexican immigrants in the United States to send back money to their families and friends could severely impair Mexico’s economy as a whole.
Huge transaction / conversion fees
Today, popular methods of remittance payments include Western Union and bank wiring, which are expensive because they involve fiat currency. Any settlement of cash requires significantly higher fees compared to digital payments as it requires a middleman or a mediator to administer the settlement.
However, the middlemen like banks and Western Union charge nearly up to 10% of the transaction as conversion and service fees, leaving the families of Mexican immigrants with only 90% of the actual payment.
More importantly, most Mexican families that reside in the rural areas of the country can’t easily access remittance outlets such as Western Union and banks. Ultimately, with the transaction / conversion fees and money it takes to travel to the remittance outlets, around 85% of the transaction is left for the families to take.
Bitcoin as a solution
Bitcoin is a feasible solution for several reasons. First, Bitcoin transactions are purely digital and decentralized. This means that Bitcoin transactions don’t require any third party applications or mediators to step in and oversee the settlement of payments which significantly lessens conversion and transaction fees.
Another benefit of using Bitcoin in sending remittance is the currency’s high international conversion rate. Unlike most reserve currencies, Bitcoin has high international conversion rate due to its demand.
Lastly, Bitcoin transactions don’t require Mexican families to travel to search for remittance outlets and banks to receive their payments. With Bitcoin, they can be their own bank.
The same has been said about Malaysia’s remittance regulation in 2015. Last year, the Malaysian government implemented a regulatory policy which states that expat workers and residents of Malaysia are not allowed sending cash to other countries, effectively terminating all international remittances.
Many proposed the use of Bitcoin but because of the lack of Bitcoin infrastructure in Malaysia, the plan never took off.