Crypto in the developing countries how it deals with productivity gap


The lack of flexibility in the Bitcoin
supply schedule results in high price
Another aspect of crypto currencies is that they support financial inclusion
because they do not require high technological standards besides having
access to the internet and a digital device (for example a smartphone) to engage in transactions (Dow Jones Institutional News, 2018).
Furthermore, no government or central bank can influence the supply of
crypto currencies, because the supply is defined in the underlying protocol of
the crypto currency (Nakamoto, 2008). Therefore, no state can influence the
flow of money, which limits governmental power.
Due to the loss of power for the government and the risk of terror financing
some countries have prohibited the use of crypto currencies, for example,
Indonesia. The Indonesian central bank has published a press released at the
13th of January 2018 that “forbids all payment system operator […] in
Indonesia […] to process transactions using virtual currency” (Bank
Indonesia, 2018, p. 1). This action shows that some states see crypto
currencies as a real threat, which outweighs the advantages crypto currencies
provide for those countries.

Developing countries and poverty
The following section provides a definition of „developing countries“.
Moreover, it also gives an overview about which countries are classified as
developing countries and are therefore in the focus of this study.
A developing country is a country with a low Human Development Index and
a less developed industrial base relative to other countries (O'Sullivan &
Sheffrin, 2003). There is no agreement which countries are categorized as
developing countries. However, most of the countries which are declared
commonly as “developing countries” have various aspects in common, which
can therefore be seen as criteria for developing countries. These similarities
are inadequate supply of food for large groups of the population, low per
capita income and poverty, a lack of educational opportunities, a lack of
access to quality health care which goes along with a high infant mortality rate
and low life expectancy. 

All these aspects lead then to higher unemployment
in developing countries, and an overall lower standard of living. Furthermore,
the existing assets in developing countries are often extremely unevenly
distributed (Bundesministerium für wirtschaftliche Zusammenarbeit und
Entwicklung, 2018).
In the study “World Economic Situation and Prospects” from 2018, the UN
delineate trends to show various dimensions of the world economy. The study
classifies all countries in the world into one of three broad categories:
developed economies, economies in transition and developing economies.
The composition of these groupings is intended to reflect the economic
conditions in these countries (United Nations, 2018). However, many
countries cannot be placed entirely in one single category, because they often
have characteristics that could place them in various categories. Anyhow, the
UN has created the groups mutually exclusive. 

A complete list of all countries
the UN and this study considers as developing countries alongside with their
geographical classification can be found in Appendix A.
In the following, the main economic issues of developing countries will be
explained. Note that they are not exhaustive, and there are also other
problems like a low educational level and inadequate medical care, which can
be considered in addition. One reason for poverty is the limited access to financial services (Beck& Demirguc-Kunt, 2006). Many studies have proven
that financial inclusion is essential for the development of a country. For
example, Honohan (2018) observed in his study, that poverty is linked to
access to financial services, and that limited access to financial services is a
significant problem itself. Financial services can help because they provide
people with the opportunity to protect themselves against situations of financial shortage (Honohan, 2008).
Financial intermediaries are not only crucial for individuals but also for
companies (Gorodnichenko & Schnitzer, 2013),

 because they provide jobs
and can grant loans. Furthermore, firms could be forced to a suboptimal
behavior, if financial frictions are severe (Gorodnichenko & Schnitzer, 2013).
Due to the detrimental situation of the companies, when they do not have
access to financial intermediaries, they cannot get funding for innovation
leading to competitive disadvantages compared to companies abroad.
Additionally, they cannot exploit potential complementarities between
innovation and export activities, which further increases the productivity gap
(Gorodnichenko & Schnitzer, 2013). 

Thus, firms in developing countries are
not able to generate as much revenue and profit as desired and therefore,
support the local economy less through fewer jobs, lower salaries and an overall lower tax volume.
Another problem of the limited access to financial services for companies and
individuals is that they cannot participate in worldwide trade. This is because
a bank account, with an international transaction identification, for example
SWIFT identification, is required. Firms without bank accounts are excluded
from a wide range of international services and are hindered in selling
products outside their region (Scott, 2016).
Another problem in developing countries is a low level of social trust, because
social trust tends to improve economic growth and the standard of living
(Barham, 1995). As social trust is highly correlated with equality, economic
equality and equality of opportunities, social trust is inferior in most of the
developing countries. 

It would be helpful for these countries to increase the
level of social trust, but many countries with low social trust are stuck in a socalled social trust trap. The logic of such a situation is that social trust will not
increase as long as there is high social inequality. However, public policies that could remedy this situation cannot be defined because there is a lack of
trust (Rothstein & Uslaner, 2005).
The next problem in developing countries is the issue of corrupt government
institutions. Corruption tends to lead to a welfare loss as only a small group
of people benefits from bribes, and many people suffer from the consequences
of lower government income. In some cases, corruption can even outweigh
the benefits of redistribution programs, such as Olken (2006) has shown for

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