Bitcoins for Everyone? Cryptocurrencies Are Not a Magic Bullet for the Unintended Consequences of Anti-Money Laundering Policies.

March 20, 2015

The recent acquisition of TagPesa, a Kenyan bitcoin exchange and remittance gateway, by Igot, a much larger Australian exchange, has led to a new round of speculation over the potential for bitcoin to transform cross-border transactions in Sub-Saharan Africa (SSA). This is of interest to the CGD working group on the unintended consequences of anti-money laundering policies because it may be a way to alleviate the burden imposed on people in poor countries by rich country restrictions on financial services.

However, in a recent interview with CCTV Africa, I argued that money-transfer operators (MTOs) which use bitcoin as a bridge currency are bound by most of the same constraints as traditional MTOs, and the transformative potential of this innovation is still quite limited. Other applications of bitcoin’s underlying Blockchain technology may be more effective.


Adapted from an image from Flickr user Antana.

BitPesa and Igot are two companies which offer to transfer money to an account held with Kenyan mobile money operator M-Pesa. In the case of BitPesa, transfers must be funded in bitcoin (BTC) already owned by the remitter or purchased through another service. Igot provides a marketplace through which remitters can buy their BTC from other users who act as liquidity providers. Other comparable services exist for other corridors. Much has recently been made of the difference between Igot’s ‘0% Fee’ and the average 12% cost incurred by remitters sending to Sub-Saharan African countries. However, this does not reflect the whole cost of using a service like Igot and in any case does not compare like with like.

Transacting into and out of BTC, as users of Igot or BitPesa must, carries some foreign exchange cost. For example, at the time of writing the exchange rates offered at mean that it costs users 2.25% to buy BTC with pounds sterling (GBP) through Igot and 1.62% to have Kenyan shillings (KES) deposited into the recipient’s account. This represents a total cost of 3.87%. Compared to the average cost of sending money to SSA this still seems like a good deal. That’s not the right comparison, though.

For example, Western Union – often portrayed as old-fashioned and expensive – now offer an online-only service for remitting GBP to KES in an M-Pesa account. This service costs 3.04% of a 300 pound transaction. So, those who have access to the internet and want to remit from the UK to Kenya can already shop around for a comparable deal from traditional MTOs. This sort of transaction – from the financially included to the financially included, conducted over the internet – is the right comparison for Igot’s offering, and is already the cheapest.

It would be much more significant if Igot and BitPesa were offering to drive down the cost of remitting 300 GBP cash to rural Somalia or Malawi, for example. Unfortunately, they are not yet. The cost of these sorts of transactions will be reduced through difficult processes such as the drive toward greater financial inclusion in receiving countries and greater financial literacy in sending countries. Using BTC as a bridge currency is of no usefulness to that effort. It is important that new startups drive down remittance costs between the financially included, but this will not produce the transformative change that many commenters seem to be hoping for.


CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.