The UAE has a long history of adopting technology quickly and assessing its potential for long-term economic growth. The nation is, like its Arab Gulf neighbours, actively pursuing programmes of economic diversification to lessen its reliance on oil. AI, 5G, the Internet of Things, blockchain, and others have all been leveraged to optimise operations, cut costs, or otherwise enhance organisations’ ability to compete in their domestic markets or on the world stage.
The nation’s relationship with cryptocurrency is a similar story. In 2016, Abu Dhabi established a crypto-friendly regulatory sandbox. And just this year, Dubai set up one of the world’s broadest and most advanced crypto licensing systems. Ever since crypto technologies arrived on the scene, the UAE government has shown a willingness to support the industry as it overcomes challenges, assesses its relationship with regulators, and tries to encourage investors. For some time, a debate has raged globally over the nature of cryptocurrency. Can it claim to be a true medium of exchange as its proponents argue, or is it merely a vehicle for speculative investment? Every time cryptocurrency prices fall, as they have recently, this debate is recycled, with many asking how cryptocurrencies can benefit people who do not have large investment portfolios. What of crypto in the everyday world of work and family commitments? For the UAE at least, one obvious example presents itself. Foreign remittances.
Some 90 per cent of the UAE’s population are immigrants, and most of them come to the country to earn a living wage, a large proportion of which can be sent home to their loved ones. They are temporary workers from countries such as India, Pakistan, Bangladesh, and the Philippines. They are in search of the economic opportunity the UAE has to offer.
Remittances are, almost uniquely, how they transfer those funds back to their families. According to a recent survey, in 2022, two thirds of UAE residents increased the amount of money they sent home, and more than half (51 per cent) said their families would have had difficulty getting by without the remittances they received. Despite the necessities of remittances uncovered by the survey, many fund-senders in the UAE were concerned about the speed of transactions, with 54 per cent ranking 24-hour delivery windows as their top priority.
Apart from speed, remittances also exact fees that impact the sender and the recipient, especially when the goal of the transaction is to cover the cost of daily essentials back home. One of the draws of cryptocurrency has historically been its ability to reduce the costs and times of transactions. India, as the prime recipient of remittances from UAE workers, is the best example to take here. According to the World Bank, the options for sending parties in remittances from the UAE to India can carry fees from 0.71 per cent to 11 per cent — a wide range indeed — and the funds can take from a few hours to a few days to reach the recipient. Unsurprisingly, senders must generally make a trade-off between fees and delivery time, with cheaper transactions translating to longer waits.
Speed up, costs down
Not so with cryptocurrency. It is possible to send significant amounts without incurring massive fees. Let us look at an example. USDT_TRX is a token pegged to the US dollar and built on the TRON network, which is one of the fastest and cheapest blockchains in operation. In a transaction that sent $485.72 (which converted to 485.72 USDT_TRX) between two wallets, the sender paid fees of 0.01 per cent (7 cents or 13.704 TRX). TRON transactions take less than a minute to complete, meaning almost instantaneous access by the recipient.
This crypto transaction was therefore verifiably faster and cheaper than any remittance options currently available for UAE-to-India transactions. The implications of this for the UAE are that opportunities exist to expand financial access for those that currently rely on traditional fiat currency-denominated remittances. UAE senders tell researchers they are seeking speed and cost-effectiveness. Crypto payment providers are in a position to offer both. This will lead to a workforce with greater disposable income that can be spent or saved. And if remittance senders choose the former, this leads directly to GDP growth.
It is worth noting at this stage that Chainalysis has already seen a surge in the number of UAE workers using cryptocurrency for remittance payments. Our data shows an increase over the past three years in the estimated number of transfers from the UAE for amounts below $1,000, which is the traditional range for remittance payments.
We have already seen the UAE acting on the potential of cryptocurrency for foreign remittances. The country has engaged with some of its largest funds receivers on crypto remittance projects. In 2021, the National Bank of Egypt and decentralised payments provider RippleNet announced a collaboration to establish a payments corridor to the UAE’s LuLu International Exchange. And most recently, the UAE’s central bank embarked on a joint project with India to establish a Central Bank Digital Currency (CBDC) bridge. The authority cited faster remittance payments as one of the main drivers of the project.
All of this is a space to watch. Given the large proportion of foreign workers in the country, the UAE is likely to kick off similar projects in the coming years. Soon, its workforce and their families will have broader representation in the global financial system and will be better able to avail themselves of the real-world benefits of cryptocurrency remittances that were previously out of reach.
The writer is Area VP Southern EMEA at Chainalysis.