The International monetary system went through radical changes over the past years, where the emergence of virtual currencies, digital money or cryptocurrencies, stands out. In this regard, Bitcoin has become the the most used and widespread. Moreover, despite the high volatility in their market value, and their vulnerability to dangerous cyber hacks, virtual currencies started to gradually gain the confidence of internet users, due mainly to their ease of use, a development that prompted major global retailers to accept Bitcoin as a method of payment.
At the regional level, the use of virtual currency is still limited in the Middle East, where the volume of trading is lower than global averages. However, there are several indications that use of these currencies has the potential to grow in the near future. One indication is an upward trend in the use of virtual currency in financial and commercial transactions, which helped introduce specialized electronic platforms in a number of countries. The development even prompted some governments to introduce their own digital currencies.
However, despite signs that it is widening in the Middle East, trading of these currencies in this region remain most difficult. Several reasons factor in, where central banks still refrain from supporting virtual currencies, and the weak use of electronic payment in general remains weak.
Swinging Confidence
Bitcoin has earned the confidence of users because, as other virtual currencies, it is decentralized and easy to issue. Moreover, bitcoin can easily benefit from inter-connected financial services thanks to widespread online trading platforms.
Due to these advantages, bitcoin trading grew at significant rates over the past years, with daily volumes increasing to more than 267,000 transactions by the end of July 2017, while the market value of transactions reaching US$45 billion according to Blockchain.info. Moreover, the increasing numbers of traders using bitcoin prompted several global major retailers, such as US-based software giant Microsoft, to accept the currency as a payment method back in 2014. Other American corporations such as computer maker Dell Technologies, followed suit.
However, virtual currencies, and bitcoin in particular, came under criticism across the world for two primary reasons. Firstly, the value of the currency was highly volatile versus the US dollar over the past years, raising concerns over a possible “global bubble” that can cause huge losses for both speculators and traders. Secondly, bitcoin trading platforms are vulnerable to cyber attacks, according to warnings issued by the United States’ Federal Reserve in March 2017. At the same time, while other central banks across the world took varying positions on bitcoin, a majority of them, apparently, are not yet prepared to support virtual currencies due to several difficulties currently facing them.
Signs of Growth
Despite the fact that the use of virtual currency is still limited in scope in the Middle East, there are signs indicating an increasing growth potential over the coming period. The following signs stand out in this context:
1- Widening Acceptance. The use of virtual currencies, and bitcoin in particular, has gained the confidence and interest of some types of internet users, triggering an upward trend that took the numbers to more than 20,000 users currently. Some of these use the special trading platforms to transfer funds from one country to another within the Middle East, benefiting from the a low transfer fee 1% compared to as high as 3% levied by banks.
A major obstacle blocking virtual currencies from spreading in the Middle East is that it is still difficult to convince businesses to accept bitcoin payments. However, some businesses in the region, including Turtle Green Tea Bar, in Amman, Jordan, took the step in recent past.
2- Trading Platform. With virtual currencies being more widely accepted as a payment method in this region, several business opportunities for specialized trading have emerged. Of the many new businesses offering exchange platforms, BitOasis stands out as the region’s first emerging company offering digital currency services.
Other platforms facilitating virtual currency payments in the region include Nouqood in Tunisia and Yellow in Lebanon. In Israel, another bitcoin trading platform was launched in May 2014, introducing the first ATM to allow the currency users to carry out real-time bitcoin transactions without the need to a third party or mediator.
3- Government Support Virtual currencies such as bitcoin offered a solution to the Palestinian National Authority (PNA) which has been seeking to issue its own digital currency to bypass the restrictions imposed by the 1994 Paris Protocol, which bans the PNA from issuing its own currency. In May, Azzam Shawwa, head of the Palestinian Monetary Authority, stated that due to limited control on monetary supplies and inflation, the Authority is weighing a bitcoin-like currency as a global digital currency and payment method. He said that “this is something we want to see, something called the Palestinian Pound.”
Future Challenges
While bitcoin has considerable growth potential in the Middle East, the region remains the world’s most hostile environment for trading of such currencies, for several reasons. Firstly, lack of support from the region’s banks to virtual currencies. For instance, the Central Bank of Jordan, in 2014, warned against investing in virtual currencies citing their highly-volatile value, high risks of financial crimes and cyber hacks.
Secondly, the monetary and financial authorities of some states in this region fear from the possibility that virtual currency can provide new platforms facilitating criminal and terrorist activities that escape their strict controls. The fears were inspired by what happened in other regions, where Middle East-based ISIS elements were believed to have financed Indonesian elements using bitcoin and Paypal transfers to carry out terrorist attacks. They include Indonesian-based Bahrun Naim that was believed to be the mastermind of the 2016 Jakarta attacks.
A third challenge is the diminishing confidence of people from the Middle East in electronic payments, which caused a decline in the use of credit cards and decreased the volume of e-commerce.
In conclusion, it can be argued that despite concerns over the spread of virtual currencies and bitcoin in particular, the international monetary system, apparently, cannot afford to ignore the development for along time. The reason is that the increasing use of virtual currencies will push central banks in the region and across the world to regulate virtual currencies and enhance confidence in this nascent industry as an asset in trading and investment in the future.
