Stablecoins: A key to emerging markets

Traditional cross-border payment systems have long posed challenges for emerging markets, including Latin America and Africa. Issues such as high operational costs, slow settlement times, and complex regulatory barriers have hindered financial inclusion and economic growth. However, the advent of stablecoins offers a promising solution.

This article explores how stablecoins are transforming cross-border payments, drawing parallels between African innovations and opportunities in Latin America.

1.The limitations of traditional cross-border payment systems

Despite the globalization of commerce, traditional cross-border payment systems remain inefficient, particularly for emerging markets.

High costs

Cross-border transactions often involve multiple intermediaries, leading to fees ranging from 6.5% to 10% per transaction. In some corridors, fees can exceed 30%, as seen in remittances from Tanzania to Uganda and Kenya. 

Slow settlement times

Transactions can take several days to settle, delaying access to funds for businesses and individuals. This delay exposes parties to currency fluctuations and hampers cash flow management. 

Limited access

In regions with low banking penetration, many individuals and small businesses lack access to international payment services. This exclusion limits economic participation and access to global markets.

Lack of transparency

Traditional systems often lack real-time tracking, making it difficult for senders and recipients to know the status of their transactions. This opacity can erode trust and complicate financial planning.

This comparison highlights the stark differences between traditional and stablecoin-based systems, emphasizing the potential benefits of adopting stablecoins for cross-border transactions, especially in emerging markets.

2.  Stablecoins as a catalyst for financial inclusion in Africa

Africa is at the forefront of global stablecoin adoption, leveraging these digital assets to address challenges such as currency volatility, limited banking infrastructure, and high remittance costs.

High adoption rates across the continent

Several african countries have emerged as leaders in stablecoin usage:

• Nigeria: Ranked second globally in cryptocurrency adoption, Nigeria has seen a significant surge in stablecoin transactions, particularly following a 30% devaluation of the naira.
  
• Kenya: With a strong mobile money ecosystem, Kenya has experienced rapid growth in stablecoin adoption, facilitating cross-border transactions and savings.
  
  
• South Africa: As the third-largest economy in Africa, South Africa is witnessing increased stablecoin usage, with institutions exploring these assets for liquidity management and hedging against rand volatility.
  
  
• Ghana and Uganda: Both countries have shown significant interest in stablecoins, with Ghana piloting its own digital currency, the e-Cedi, to complement existing financial systems.
  
  

Several international companies operating in Africa have begun paying employees in stablecoins to mitigate currency volatility and reduce transaction costs:

• Appen: In partnership with Mercy Corps Ventures and Kotani Pay, Appen conducted a pilot program paying gig workers in Celo Dollars (cUSD), enabling instant payments and financial inclusion for unbanked workers.
• Bitwage: This platform facilitates payroll in stablecoins like USDC and USDT, allowing companies to pay international employees efficiently while avoiding currency conversion fees.

Expanding access to financial services

With approximately 63% of Africa's population remaining unbanked, stablecoins offer a transformative solution to bridge this gap. By leveraging blockchain technology, stablecoins enable individuals without traditional bank accounts to participate in the global economy through digital wallets and mobile platforms. This accessibility is particularly impactful in rural and underserved areas, where traditional banking infrastructure is scarce.

Moreover, stablecoins provide a hedge against local currency volatility, allowing users to preserve the value of their assets. In countries experiencing high inflation rates, such as Nigeria, stablecoins like USDT and USDC offer a more stable store of value compared to local currencies

This table highlights the significant cost and time savings that stablecoins offer for cross-border remittances, underscoring their potential to enhance financial inclusion and economic participation across Africa.

3. Opportunities for Latin America to leverage stablecoin innovations

Latin America faces challenges similar to those in Africa, such as economic instability, high remittance costs, and limited banking access. However, these challenges also present opportunities for adopting stablecoin solutions to enhance cross-border payments.

Economic instability and currency devaluation

Countries like Argentina and Venezuela have experienced significant inflation and currency devaluation, prompting citizens to seek more stable financial instruments. In Venezuela, for instance, between July 2023 and July 2024, 47% of transactions under $10,000 were conducted using stablecoins, and 34% of all small retail transactions involved stablecoin trades—the highest percentage in Latin America. 

High remittance costs

Latin America is one of the largest recipients of remittances globally. In 2023, remittance flows to the region reached $156 billion, accounting for 17% of the global remittance market. However, the average cost of sending remittances to Latin America remains high, averaging around 6% per transaction. Stablecoins offer a cost-effective alternative, potentially reducing fees and increasing the speed of transactions.

Growing digital adoption and fintech ecosystem

The fintech ecosystem in Latin America is rapidly expanding. In 2023, Brazil and Mexico maintained their positions as the main fintech hubs in the region, hosting 23.53% and 20.14% of the total fintech companies, respectively. Additionally, the fintech market in Latin America reached USD 13.14 billion in 2024 and is projected to grow at a CAGR of 15.90% to reach USD 49.58 billion by 2033. This growth indicates a readiness to embrace digital currencies and stablecoin solutions for more efficient transactions.