Society is at a turning point.
Inequality has been growing for decades, with the world’s richest 1% today owning 45% of its wealth. Many countries are missing out on the benefits of a developed and inclusive financial system, and emerging markets are increasingly struggling to keep up. But to what extent can crypto solve their problems and increase financial inclusion? Are emerging markets ready to take advantage of the potential benefits on offer?
An unequal playing field.
The issues faced by emerging markets in the financial sector can often be traced to historical structural inequalities. As the rest of the developed world continues to grow and innovate, many emerging economies are still struggling to overcome the very basic issues that their developed counterparts dealt with decades, or centuries ago. They are beset by poor corporate governance, weak legal and judicial infrastructures, and limited access to reliable information.
This results in opaque financial systems that are prone to corruption. In a Bank of International Settlements (BIS) report on financial stability in emerging markets, it was claimed that the lack of transparency about banks’ operations and financial conditions makes it difficult for stakeholders to exercise proper market discipline. The lack of effective management and political interference also makes it difficult for banks to exercise prudence in the loans sector, dragging people into debt they are unable to get out from under of.
Investopedia notes that “Investors who seek a fair, competitive business environment will avoid investing in countries where there is a high level of corruption.” Poor education and limited access to adequate healthcare are also often serious problems within emerging markets – these, too, have a direct, serious impact on the viability for emerging economies to perform.
Disruptive technologies can and have helped to remedy the financial disparity in emerging markets. If we look at the case for Artificial intelligence (AI) being used, the applications are poised to aid a variety of inefficiencies. Owing to AI’s sophistication, many believe it lends itself better to applications in developed economies; but AI is perhaps even more relevant in emerging markets,
In villages in Indonesia and Kenya, AI enabled systems are making it easier for small entrepreneurs and farmers to gain work more efficiently. Across these emerging economies, farmers are able to use common mobile devices to access AI-enabled weather services that provide real-time information on weather, water usage and requirements and soil conditions, allowing them to make more informed operating decisions.
In terms of financial inclusion, though, there are few technologies having a greater impact than cryptocurrencies.
A growing market.
The potential of cryptocurrency in emerging markets is already being realised to an extent, with high levels of adoption increasingly reflecting this. According to a 2019 Statista Global Consumer Survey, the top five countries in terms of cryptocurrency adoption are Turkey, Brazil, Colombia, Argentina and South Africa.
Out with the old, in with equality.
When we look back at the history of the financial system, we’ve got to think about who it was there to serve. Big banks have always been in the business of making money – from credit lending to interest rates. These are not what emerging market participants are after.
The blockchain and cryptocurrency space has thus far looked at the technology’s implications for solving economic and social problems. That too is changing, in ways that treat emerging markets not as beneficiaries of global do-goodism but as full market participants.
Equal access is an issue plaguing many of the world’s monolithic industry structures: healthcare, education, finance. The worry creeps in when we realise the more progress is made, the bigger the gap grows.
Technology to the rescue.
Emerging markets may actually be better equipped than their more developed counterparts to exploit the benefits of new technology. They don’t have the established, legacy systems built up during previous waves of technological innovation. This means they are more agile and more able to build systems afresh.
For example, as Tyler Winklevoss, successful investor and entrepreneur, explains: “A lot of African countries leapfrogged the infrastructure of landline telecoms with cellular. They skipped that step. Blockchain will have the greatest impact in areas where the payment networks don’t exist or are very poor.”
Considering the heavily entrenched nature of older financial systems, in particular, it makes sense that emerging markets are better poised to start from scratch with innovative financial solutions. There’s an advantage to starting with little to no structure, because when change happens, agility and flexibility will always win the race.
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