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Minneapolis has a large community of immigrants from Somalia. They have been accustomed to sending money to relatives there. One person among them sent money to a terrorist organization that had an agent in Somalia. Seemingly in response to that incident, local banks, fearing liability, stopped providing the service of wiring money to Somalia. One person abused the system, so it's made unavailable to everyone.

Could bitcoins be used instead? Could that service be quickly made available to the Somalis? E.g., how much access to the internet in Somalia would be needed? Would it be sufficient for those who were in the business of receiving wire-transfers there to have internet access? What liability issues might arise for those who inform those in need of this system of how to do it?

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See a related news item. And another. –  Michael Hardy Jan 7 '12 at 7:33
    
And another related news item: forbes.com/sites/jonmatonis/2012/05/12/… –  Stephen Gornick May 17 '12 at 6:38
    
This is an interesting subject. I never thought about Bitcoin solution to Somalia. I first heard in one of the class projects my classmates presented a year ago. I'm a recent IT graduate and thinking about an opportunity in this type of business in Somalia (Got a dual citizen US/Somali). I don't wanna sound like a conman but if anyone is interested in to work on this type of project, please feel free to contact me. I'm not sure if I can post my email here per the forum policy but my email is moallina@gmail.com. –  user2509 Dec 27 '12 at 2:19
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The system the Somalis (and many others) have been using to send money around the world for centuries is called hawala. Monetary futurist Jon Matonis calls Bitcoin a potential replacement for hawala.

Right now, I suspect that Somalis would be hard-pressed to use Bitcoin for personal remittances, owing to the lack of local exchangers and Bitcoin-accepting merchants on the ground. However, traditional hawaladars might well use Bitcoin as a means of settling accounts among themselves, while taking receipts and making payouts in the locally-preferred fiat currencies.

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The FBI has been cracking down on hawala because it is frequently used as a way to fund terrorism or the drug trade in the Arab world, even if only a small fraction of a percent of hawala transactions are illegitimate. –  Diablo-D3 Apr 10 '12 at 10:07
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Hawala (sometimes referred to as hundi) involves a trust relationship between the two hawaldars. The hawalder who receives the funds (in Minneapolis, for example) is a trusted partner to the other hawalder who disburses the funds (in Somalia, for example).

With Bitcoin, this relationship between hawalders becomes unnecessary. These hawalders simply become exchangers operating independently.

There are plenty of methods in which bitcoins can be acquired by the person wishing to send money, so the remaining gap is finding an exchanger who will trade shillings, dollars, euro or whatever for bitcoins within Somalia, for example.

Bitcoin is uniquely positioned to make this possible however, due to its properties where transactions are non-reversible, extremely low in cost (transaction fees), and where funds become available for spending right away (in about an hour, for example).

This makes it possible for a network of individuals to do the grunt work function where the exchange involves transaction sizes as low as $20 worth of bitcoins, for example. With transaction fees being trivially low, small, independent exchangers can trade bitcoins with each other for immediate needs but when the supply of shillings, dollars and euro needs to be replenished they can trade with slightly larger exchanges.

Those larger exchanges would then trade bitcoins either directly or indirectly with Bitcoin exchanges that interact with banks or with parties that essentially offer these banking services.

When bitcoins then are seen as something with value because they can easily and inexpensively be cashed out, on demand, they might then start being used for trade alongside shillings, dollars and euro.

And that is where things start to become interesting.

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In a comment under another answer someone said that although a person in Somalia could trade bitcoins for dollars or euros or shillings or whatever on mtgox, there would still be the problem of getting those dollars or euros or shillings to Somalia. Do you see a solution to that? If there's a way to do it, things could start to happen as soon as those in need of this technology become aware of it. –  Michael Hardy May 12 '12 at 20:05
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@MichaelHardy yes, if I understand correctly his post, his point is that some hawalders would do the exchange in bitcoins, and on both sides they would use the usual currencies with the people. Those hawalders would supposedly have a bank account in a country without those restrictions. –  Lohoris May 12 '12 at 20:10
    
umm..... "restrictions"? The only "restriction" that appeared to be talked about here was the fact that it seems to be hard to ship US dollars to Somalia. –  Michael Hardy May 13 '12 at 5:45
    
i.e. not legal or political or otherwise enforced restrictions, so much as the fact that no bank or the like is sending dollars there. –  Michael Hardy May 13 '12 at 5:46
    
That's what I said: as long as the hawalder has a bank account in another country, he can have Mt. Gox send the money there, without any issue for his user. –  Lohoris May 13 '12 at 9:52
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Thanks to eWallets, one needs very little access to the internet to operate on the Bitcoin network. Provided you trust those, it should be as easy as operating PayPal.

The main problem though is getting Bitcoins in Somalia, how stable the Bitcoin value is, and how much the fees are.

There are no exchanges supporting anything but the major currencies, so someone wanting to get some coins would have to earn them by offering some goods or services online. Because of this people might not be willing to trade in Bitcoins, as they would not be able to transfer them to their local currency.

Currently, the value of Bitcoins is increasing quite fast and nobody's sure where it'll stop. The problem is, that is can go down in value just as fast, an then anyone holding savings in Bitcoins rather than a traditional currency would be at a loss.

The current version of the Bitcoin client requires one to pay a fee based on the size of the transaction. It isn't much if you are transferring a couple Bitcoins, but when you want to send equivalents of a couple cents, it can eat a noticeable part of your transaction. If the value of Bitcoins will go up, the equivalent value of the transactions in real currency will increase, thus making every transfer of Bitcoins more expensive. At some point, using Bitcoins for transferring low-value currency will stop being feasible.

All in all, yes, Bitcoins are a viable replacement of the traditional banking system and can be used pretty much anywhere, but the infrastructure for using Bitcoins might not yet be available everywhere for wide adoption.

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I'm not sure I follow all of this. Say someone in Minneapolis has $50 that they want to send to someone in Somalia. They can buy bitcoins via mtgox or the like. Couldn't they send them to someone in Somalia if that person has access to the internet? That person could exchange them for U.S. dollars via mtgox or whatever, and trade the U.S. dollars for whichever currency is used locally. Are you saying the infrastructure for that isn't there? –  Michael Hardy Jan 7 '12 at 20:05
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@MichaelHardy They can exchange Bitcoins for MtGoxUSD, but later getting them out of MtGox might be a problem, since some banks don't want to wire money to Somalia. If one could wire the money to them, this problem wouldn't exist in the first place. Generally what one would need is a Bitcoin exchange in Somalia, perhaps in a form of hawaladars, that would exchange Bitcoins for their local currency (or even dollar notes). –  ThePiachu Jan 7 '12 at 20:14
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I see. It would be interesting if bitcoins could be the solution to a humanitarian crisis. It would get some good publicity for bitcoins. –  Michael Hardy Jan 7 '12 at 23:18
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One of the problems that would likely be encountered by someone wanting to set up a bitcoin exchange in Somalia would be that there wouldn't be much demand to buy bitcoins. This would mean that sellers of bitcoins could be forced to sell at a less favourable rate than the standard currency conversion rates offered to other countries currencies. –  Highly Irregular Jan 9 '12 at 1:01
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@HighlyIrregular Well, if you would convince the hawaladars to deal in Bitcoins, you could have a pretty viable market for exchange. They probably could exchange Bitcoins for some other currency at a normal Bitcoin exchange, get it wired to someone that can accept foreign wire transfers and so forth. It's probably a matter of finding someone interested in the concept locally, sending some coins over and starting to trade in them. If someone would be business savvy, that's probably where one could find a nice niche market for Bitcoins (or perhaps some other cryptocoin) to thrive. –  ThePiachu Jan 9 '12 at 1:10
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