Blog: Cryptocurrencies and remittances

Blog: Cryptocurrencies and remittances

El Salvador made history by being the first country in the world to make bitcoin legal tender in 7th of September 2021. Many may wonder, why a relatively poor country like El Salvador was the first to do this, rather than a country from the technological forefront like Japan? One of the main reasons are global remittances.

The importance of remittances to developing countries

Remittances can be very a large part of the developing countries’ GDP and consumption opportunities of their citizens. In these countries, it is very common that families have at least one member who has moved abroad to work in a wealthier country and sends part of their salary back for family members living in the home country. According to the data from Worldbank, island nation Tonga has the largest portion of remittances to GDP at 37.2 %. El Salvador is at fifth place on this list, with remittances making up 24.1 % of its GDP. Without remittances coming in, the economies and standard of living in these countries would collapse.

So far, people have had to use traditional financial services for remittances. However, these services have two major problems, high costs and the number of unbanked people. Companies like Western Union could charge over ten percent for these services and the transfers can take several business days. In addition, even today a very large portion of world’s adult population is unbanked. This may seem odd to many living in the developed countries, where almost 100% of the adult population have a bank account, but for example in El Salvador only about one in three adults has a bank account.

Cryptocurrencies and remittances

Because of the problems discussed above, cryptocurrencies are superior for remittances compared to traditional finance services. Same time as making bitcoin legal tender, El Salvador also introduced a national bitcoin wallet called Chivo. Chivo uses a so-called lighting network for bitcoin transfers which makes the transfers almost instant and with no fees for El Salvadorans. The drop in the cost of remittances will have a huge positive impact for the economies of El Salvador and other similar countries. According to Worldbank’s statistics, there are more than 60 countries where remittances make up at least 5 % of the county’s GDP.

In addition to lowering costs, cryptocurrencies make it possible for more people to use these kinds of services. Even though many people don’t have access to banking services, they do have access to the internet and smartphones. These two things make it possible to use financial services in the ecosystem of cryptocurrencies. It is very likely that the rapid development of cryptocurrencies and the DeFi sector will create a similar situation for financial services as the development of mobile phones had a few decades ago. At that time, multiple countries started using mobile phone networks without first building landline infrastructure. Now, cryptocurrencies are bringing financial services to unbanked people in these countries without the need to build local banking infrastructure.


By making bitcoin legal tender, El Salvador made it possible for its citizens to use far better remittance services than what the traditional financial institutions have ever been able to offer. It wouldn’t therefore be surprising to see more countries following in El Salvador’s footsteps. After the law was enacted, the news channel CNBC reported how this could cost Western Union and similar companies $400 million a year. It is very likely that the El Salvadorans see this from different point of view: the introduction of bitcoin could save El Salvadorans $400 million a year.

Manu Isto Cryptocurrency specialist
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Last updated: 10.03.2022 14:03
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