It’s been over a decade since the last global recession, yet global debt is at an all-time high. At 318% of GDP, the figure sits at a staggering $244 trillion. While governments across the globe are trying to clamp down on expenditure, economies are still under tremendous pressure to perform. With the rise of digital currencies and a digital marketplace, the pressure seems to be alleviated somewhat. But can crypto have an effect on the global debt problem? With mounting interest from banking behemoths and financial institutions to start their very own crypto equivalents, it just might.
Payment System Leads The Way
Saudi British Bank (SABB) recently joined hands with Ripple to streamline their Instant Cross-Border transfer system. Since its inception, banks have considered cryptocurrencies as a threat to banking as we know it. While blockchain and cryptocurrencies have come to disrupt the financial industry, it doesn’t have to mean the end of banking. For banks, embracing crypto will undoubtedly ensure they remain relevant. While still in its pilot phase, Ripple is set to replace SWIFT as the payment channel of choice. For banks, blockchain technology is a no-brainer as these transactions are much safer. What this means for loan repayments is that consumers who happen to own Ripple assets, are one step closer to settling their finance using crypto.
Crypto-Backed Loans In The Running
One of the reasons consumers seem to remain in debt is due to high interest rates that make it almost impossible to get out of debt. They constantly seem to be in a position where they’re paying off interest, while barely scraping through the capital balance outstanding. Crypto-backed loans allow consumers to access finance without having to forego their crypto unless they’re unable to maintain the payments. For those who need to work on their credit rating, this is a favorable option as the loan is backed by the asset. Crypto loans are a suitable option for those who’ve had financial difficulties in the past and are struggling to secure finance. While this increases a consumer’s exposure to more debt, it immediately brings the risk of the loan down as there is an asset as security.
Crypto Encouraging Consumers To Save
One of the best ways to reduce the reliance on debt is to have sufficient funds available to cover emergencies. An interest-bearing account is a good way to start and thanks to BlockFi, Bitcoin and Ethereum customers have access to these accounts. Those who meet the minimum requirements for the accounts can enjoy interest rates of around 6.2% on deposits. They will also have access to loans at favorable rates. For consumers, this is a good way to access some liquidity on their cryptocurrency and perhaps even facilitate payments with their crypto wallet, bypassing banks entirely.
While consumer debt will in all likelihood still be here for the foreseeable future, there is no reason why it can’t be alleviated by a technology that provides safe and accessible credit.