Cryptocurrencies can help developing economies bridge the digital divide and boost financial inclusion, billionaire blockchain technology pioneer Brock Pierce said.
Citing El Salvador, which became the first economy to adopt Bitcoin as a legal tender last month, Mr Pierce said more than half the Central American nation's population downloaded the Bitcoin Wallet in a month.
“Results are unbelievable … they managed to achieve what was my highest expectation. The data shows the courageous move has worked … the latest technologies or innovations can address the global problem of under- or unbanked population,” Mr Pierce told a panel at a future-of-finance event hosted by the Middle East Futures forum this week.
“The level of interest in digital currencies in the developing world is unbelievable … how can you expect prosperity if you don’t have the essential financial tools? El Salvador has proved that this idea works to create financial inclusion,” he added.
Globally, about 1.7 billion adults remain unbanked with no account at a financial institution or through a mobile money provider, a World Bank report released in 2017 showed.
Nearly half of them live in seven developing economies — Bangladesh, China, India, Indonesia, Mexico, Nigeria and Pakistan — and almost 56 per cent of all unbanked adults are women.
However, financial access rates have increased since 2011, when the Bank Group began documenting them through the Global Findex database.
The share of adults who own a bank account rose globally from 51 per cent in 2011 to 69 per cent in 2017 — an additional 515 million people, World Bank data show.
To attract people to digital currencies, the Salvadoran government offered citizens $30 worth of free Bitcoin if they downloaded the crypto wallet.
Mr Pierce said El Salvador’s move could face some initial hurdles including technological glitches, protests and less funding from agencies like the World Bank or the International Monetary Fund.
But it will attract new foreign direct investment worth billions of dollars to El Salvador, where more than 70 per cent of people are either unbanked or underbanked, he said.
“El Salvador does not get much money from the World Bank and IMF as compared to the other countries … I think they were expecting $1.3 billion this year in the form of debt.”
“But their recent action is astounding … very entrepreneurial, and it will attract FDIs that will create sustainable streams of revenue in the longer run,” he added.
Mr Pierce, who ran as an independent candidate for the US presidency last year, is chairman of the Bitcoin Foundation and co-founder of EOS Alliance, Block.one, Blockchain Capital, Tether and Mastercoin, and is credited with establishing marketplaces for digital currency.
“This [blockchain and digital currency] technology works in an environment where most people are unbanked or they don’t have access to their capital as in the case of Lebanon,” Ali El Husseini, chief executive of Medici Land Governance, told the panel.
“We have figured out that this is something revolutionary … makes things easier and will allow people to do things differently. It is really something that every country should adopt,” Mr El Husseini said.
Central banks around the world have been reluctant to endorse cryptocurrencies because of their speculative nature, lack of value and regulatory oversight.
The Central Bank of the UAE does not recognise cryptocurrencies as a legal tender.
Last month, China, the world’s second-largest economy, vowed to root out “illegal” activity in the trading of Bitcoin and other virtual currencies, as it renewed its tough talk on cryptocurrencies.
Quick pearls of wisdom
Focus on gratitude: And do so deeply, he says. “Think of one to three things a day that you’re grateful for. It needs to be specific, too, don’t just say ‘air.’ Really think about it. If you’re grateful for, say, what your parents have done for you, that will motivate you to do more for the world.”
Know how to fight: Shetty married his wife, Radhi, three years ago (he met her in a meditation class before he went off and became a monk). He says they’ve had to learn to respect each other’s “fighting styles” – he’s a talk it-out-immediately person, while she needs space to think. “When you’re having an argument, remember, it’s not you against each other. It’s both of you against the problem. When you win, they lose. If you’re on a team you have to win together.”
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Tank warfare
Lt Gen Erik Petersen, deputy chief of programs, US Army, has argued it took a “three decade holiday” on modernising tanks.
“There clearly remains a significant armoured heavy ground manoeuvre threat in this world and maintaining a world class armoured force is absolutely vital,” the general said in London last week.
“We are developing next generation capabilities to compete with and deter adversaries to prevent opportunism or miscalculation, and, if necessary, defeat any foe decisively.”
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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