Thursday, 28 December 2017

Growth Marketing Lessons you can Learn from Tinder

edgylabs.com

Tinder has been downloaded over 50M times. We discuss growth lessons you can learn from the dating app’s astronomical growth.

Image result for Growth Marketing Lessons you can Learn from TinderTinder was launched in September 2012 but didn’t grow much in the first few months.
It was in 2013 that the location-based dating app gained massive popularity in the app world. In just over a year, Tinder had 10 million users and generated over 20 million matches.
By the end of 2014, Tinder had been downloaded over 40 million times.



Tinder growth graph
Tinder Growth | Parantap

How did Tinder achieve such staggering growth in a short amount of time in a niche that is pretty much considered to be saturated?

Short answer: Tinder did things differently. Long answer: read on in detail below.

1. Create a Flawless User Experience

One of the key levers to Tinder’s growth was its amazing user experience.
Before Tinder, all dating platforms were mostly web-based and pretty much the same. All of them would require you to create a lengthy profile of yourself to attract potential dates.
Tinder changed this. Tinder created a gamified experience that resembled how we make snap decisions in real life.
“WE WANT TO CREATE EXPERIENCES THAT EMULATE HUMAN BEHAVIOR. WHAT WE DO ON TINDER IS NO DIFFERENT THAN WHAT WE ALREADY DO.” – SEAN RAD, TINDER CEO
With a simple swipe to either left or right, with left meaning “No” and right meaning “Yes“, a user could express interest or disinterest in potential dates based on a few photos.



Tinder Onboarding | Apptimize

Only when a match is created (when two people swipe right to each other’s profile), would users be able to message each other.

2. Identify and Leverage the Right Network

“If you build it they will come” mentality doesn’t work anymore. No matter how awesome your product is, you still have to find a way to get the word out there.
Like most startups, Tinder faced a similar problem of getting people to use their app. They had a great product but they needed users.
Tinder faced the classic chicken and egg problem two-sided marketplaces face. They needed men and women on the platform to achieve liquidity.
Most importantly, they needed women first to get the guys to use it.
Whitney Wolfe, Tinder’s VP of Marketing at the time came up with a plan to recruit influencers on U.S. college campuses as brand ambassadors. This immediately fueled a network effect spreading the product across multiple campuses through word of mouth.
Soon Tinder downloads were being used as tickets to attend frat parties.
Wolfe also gave presentations about the app on various campuses and got people who attended the presentations to download the app.
As a result, Tinder became very popular among people between the ages of 18-23. To date, this age range makes up 57% of all Tinder users.
In a nutshell, Tinder created a product with an awesome UX experience and introduced it to the right audience who also had the power to promote it.

Snapchat will push content outside its own app

uk.businessinsider.com

evanSnapchat is reportedly looking to publish its content outside its app for the first time with 'Stories Everywhere'

  • Snap is reportedly developing a program called Stories Everywhere that will allow third-party publishers to embed Snapchat content on their websites.
  • Stories Everywhere will be used to accelerate Snapchat's user growth, which has been stalling. 
SnapChat maker Snap is getting ready to take some of its content beyond its app: Snap is developing a new program dubbed Stories Everywhere that will allow third-party publishers to embed Snapchat content on their websites, according to a new Cheddar report.
Snap didn’t immediately respond to a request for comment.
The project is being led by Rahul Chopra, who perviously served as CEO of the social news aggregation service Storyful, as well as global head of video for News Corp. Chopra joined Snap in December, according to his Linkedin profile, which calls him the company’s “head of stories everywhere, content.”
The idea behind Stories Everywhere is to accelerate user growth for Snapchat, which has been stalling. Cheddar’s report likened it to Twitter’s decision to allow the embedding of tweets in third-party websites.
Allowing publishers to embed Snapchat Stories on their websites could potentially also help convince the company’s partners to stick with the format, which has been a bit of a mixed bag for some. Last week, news broke that CNN is axing its daily Snapchat news show “The Update”just four months after its launch because of a lack of monetization opportunities.

Wednesday, 27 December 2017

4 Features to Highlight When Launching Your New Business App

business.com

It's hard to make an app stand out in the crowded market. These are four aspects you'll want to emphasize about yours to make sure users know it's a quality app when you launch it.
If you are preparing to launch your new app into the market soon, you are likely aware of the stiff competition you will face. With over 12 million apps available across the leading online stores, making your program stand out can be a daunting task.
Across the board, developers and users agree that ease of use and intuitive capabilities are the most important features. So, while user experience must be at the top of your priorities list, it is also important to highlight the unique features that make your app appealing.
To attract customers to your new app, you must create a strong and enticing value proposition that encourages them to give it a shot. Here are some of the top features that should play a prominent role in your promotion.

1. Graphics and user experience

Seventy-five percent of mobile app revenue is generated by apps that feature high-quality graphics, making them one of the key factors for success. These apps are set apart by their superior design, strong graphics quality and innovative elements that keep audiences entertained for hours on end. Graphics signal quality to the user. They are what creates a unique visual experience.
Remember, graphics are not limited to the gaming category, though they do play an important role in the success of an entertainment app. No matter what category your app falls into, high-quality graphics will always make it a clear choice against the competition. Ultimately, the graphics are what create the intrinsic feel of your program.

2. Nostalgia

Millennials make up the largest consumer group of mobile app usage, making them the most profitable and sought-after segment in the market. Interestingly enough, if you really want to capture their attention, all you need to do is remind them of the good old days.
Millennials strongly connect with apps that evoke sentiment. This is due to the strong emotional connection they have to the toys they played with and the stories that kept them entertained when they were children. Need proof? There are entire categories of content on BuzzFeed dedicated to the '90s.
Unsurprisingly, businesses have a lot to learn from the entertainment sector here. Connect with your audience by stirring up some nostalgia with throwback storylines and characters. Tapping into nostalgia by bringing back beloved characters and stories from childhood is a great way to get this large market excited about your app.

3. Personalization

Personalizing the UX is one of the best tactics for app design. In fact, 71 percent of consumers have paid more for a brand service that offered more personalized experiences for them.
Take Pandora's music app as a great example. When Pandora introduced its Music Genome Project, it made sure all of its customers knew what a difference personalization could make in the streaming service. The unique technology gave Pandora a strong value proposition as it went head-to-head with competing music streaming services like Spotify and Tidal.
Tell your customers just how your app can be tailored to them specifically, whether it be customizable colors and layouts or curated content based on their preferences. A little personalization can provide a more engaging and authentic UX, which can dramatically improve customer loyalty.

4. Multiplatform capabilities

Making your app compatible with multiple screen sizes and capabilities may take some extra work for your development team, but it's a feature you simply cannot omit. Bock & Company conducted a study to determine which features were most important in mobile app development, and 71 percent of respondents agreed that multiplatform capabilities were extremely valuable to end users.
Emphasize your app's usability across all devices, like Yelp did with its featured blog post announcing its Apple Watch-friendly version. These days, users often switch back and forth between smartphones, tablets and wearable tech. The option to use the same app across multiple devices is a great feature to highlight.
The key to a successful launch is marketing the right way from the start and highlighting the key features. Always keep in mind that the end user is the most important piece of the puzzle for success. Make sure that you clearly explain just why that person needs to give your app a shot. Good luck!

Where does brand safety go from here?

mobilemarketer.com

As the industry continues to prove, even the most finely crafted digital ad campaign can be twisted if threats to brand safety aren't actively addressed. Digital advertising is becoming increasingly automated, with programmatic ad buys made with vast publisher networks placing ads besides all kinds of content, and at a scale beyond what could ever be vetted by human eyes. When this associated content is problematic for the brand — and viewers notice and share screenshots across social media — it can become a viral event that hijacks the ad campaign and corrupts any goodwill it had earned. This issue has now become top of mind among brand marketers, as a CMO Council survey found that 72% of CMOs said they face pressure from their bosses to secure brand trust.
Advertisers were awakened to the severity of these brand safety risks earlier this year, as reports detailed the inability of the Google Display Network and YouTube to effectively protect brands from having their ads placed alongside hate speech and terrorist propaganda. A boycott by major companies ensued. More recently, in June, P&G Chief Brand Officer Marc Pritchard announced that the consumer goods giant would focus on the "quality and craft" it expects ad publishers to demonstrate in overseeing the safety of content. P&G, which is one of the world's largest advertisers by media spend and an influential voice in the industry, has also signaled its intention to shrink its marketing spend by $2 billion over the next five years, eyeing improvements to ad quality and transparency that will allow it to do more with less. As major players such as P&G shine a spotlight on brand safety and the risk of reputational damage from careless ad placements, expect the industry to increasingly demand solutions to this issue.
In the meantime, there are several approaches for brands to pursue in safeguarding the quality of the ad inventory they purchase. One method is to rely on private marketplaces or direct ad buys from site publishers. This offers advertisers the opportunity to select premium, vetted ad space associated with content and audiences well-suited to their brands. One caveat in the case of these premium publishers, however, is that unless they have insight into each page within their ad inventory, the possibility still exists of placing ads beside inappropriate content that these reputable entities unwittingly provide.
Contextual targeting can also serve brands by allowing ad content to be matched with the editorial content of a page, ensuring relevance and promoting engagement while avoiding more objectionable content. This can include content categorization at the page level, identifying and classifying content not only to determine if it's objectionable, but also recognizing hundreds of other criteria to maximize the specificity of contextual targeting. This strategy makes use of artificial intelligence, machine learning and human quality assurance in determining the nature of content. It's important to note that what's appropriate for each brand involves a component of cultural context and isn't universal. For example, an ad placement on a website intended for adult audiences may be on-brand for an underwear retailer, but a disaster for a children's toy brand. This is why deeper insights and transparency into where online ads pop up is so crucial to brand safety.
As it stands, content categorization does come with a few challenges. Analyzing the written content on a webpage and analyzing image or video content are very different tasks, and all-in-one approaches that appropriately categorize all types of content are hard to come by. Videos and images are often more difficult to vet for brand safety than text simply because it can be more interpretive or ambiguous in nature. Content can also be embedded in a separate iframe, where solutions can't effectively analyze it. Content categorization approaches to brand safety are also trickier for marketers targeting mobile apps because the inventory consists not of webpages, but multimedia-rich apps. These apps are locked down by the app publisher's SDK, making it a challenge for any third-party to analyze its ever-evolving content. Mobile app marketers concerned about brand safety should instead rely on apps' reputations and content ratings rather than the content categorization techniques.
These limitations aside, targeted ad buys and content categorization still have a lot to offer when it comes to enhancing brand safety. Brands blindly placing ads online take a greater risk than they realize, too often resulting in reputational damage, embarrassment or lost sales. By taking appropriate measures to understand where the ads they buy will ultimately be displayed, brands can both safeguard their name and target their campaigns to be viewed in the most appropriate context.

Tuesday, 26 December 2017

10 Tips To Improve Mobile App Conversion

theinscribermag.com

Nowadays it is impossible to imagine a good business without a website or even an application for different mobile services.
However, lots of the entrepreneurs still ignore the great potential of the usage of various techniques of the creation of an application for the mobile devices, what later may lead for the reduction of the number of customers and visitors. For example, in the 21st-century mobiles already overtake the laptop industry, while being sometimes much more powerful, than modern computers.
As a result, we may say, that the usage of smartphones is much more frequent nowadays than the usage of common computers. Due to this, we can not underestimate the real potential of the usage of these applications and those highly beneficial features, which they have inside them.
Because of the fact, that sometimes people tend to think, that innovations are not the best business making tools, I am willing to describe you something in that article.
As you may know, in the world of cyber business there is such a term as user engagement. It means an opportunity of a developer or an owner of that particular business to turn common visitors of the websites to real customers or even faithful users.
So, what if I say, that one of the most effective ways of the development of that user engagement is the creation of an application for the development of your business.
However, there is also another side of the coin. It is not enough to have just an app. That particular application has to have good conversion rate, what will later allow you to attract much more people and promote and boost your response on a directly new level.
Thus, in that article, you will see top 10 techniques, which will allow you to improve an app conversion rate.

1. The Importance of Testing

One of the most prominent features of the development of the app conversion is the arrangement of the testing processes all the time. You may ask, why it is so vital? The answer is really simple. In order to create a good application there should not be any mistakes and bugs.
So, due to this, it might be possible to implement any designing and technological innovations into an application. Besides, thanks to the creation of a properly organised and working extension we makes the whole process of surfing within it much more convenient for a user, what definitely play a pretty important role.

2. First Impression and Design

In any situation, when you are dealing with any cyber products, one of the most elements is the look of the design and the interface of an application. Nowadays, people, who are using IT technologies and especially the Internet are aimed on the usage of simple and clear functions, buttons and parameters.
All of these demands may be fulfilled with the creation of a proper UX design. What is actually UX? Frankly, UX means a design, which is able to be used intuitively with no obstacles and problems of the users. So, it is really vital for a developer to have a good UX designer in his team, what later may not let you regret about your decisions.

3. Encouraging the Users

In the 21st century people will not do anything with no encouragement. That is why, in order to attract people’s attention to your application it is really vital to arrange various advertising campaigns and special offers. Usually people, who are actually animals, tend to base the relations in the societies, while basing them on deals.
It is properly seen in the whole system of world currencies. So, the same situation os with the creation of an application. Your potential users have to see, that there are several things, which you may be able to offer instead of their attention and purchases, which will bring your company more revenues and popularity.

4. Is It Important to Follow the Trends?

One of the main aspects, which tend to play the most important role in the development of your application and especially in the improvement of its level of conversion is an opportunity of a developer to follow the trend and monitor all the news from the technological field in order to keep up with all the innovations.
I am talking so seriously now because of the fact, that people, the users, always like something revolutionary new and absolutely unknown, die to this, it is highly vital to be able to present these audience something creative from time to time, what will give you an opportunity to impress them and hold in a right way.

5. Defining an Audience

The functionality of an application or a website and its opportunity make real customers from common visitors usually depend on a major audience. That major audience has to be properly defined by the main developer, who is actually arranging all of the needed operations focused on the attraction of people.
Furthermore, while basing on the major community of the users, you may say, that all of the advertising strategies and even goods depends on their statement and their Willig’s. So, if you want to keep your app in a proper shape, it is really important to be able to define a right audience.

6. Use Both Platforms

The usage of two most popular platforms for the development of an application may help you to attract the much bigger audience. Lost of the programmers are interested in how to port ios to android or vise-versa just in order to be able to occupy bigger fields of business. Thus, in case if you recognize the same techniques, you may increase your app conversion really rapidly.

7. Make an App Useful

One of the main priorities for the development of a good application with a good conversion rate is the creation of useful extension. In order to make the whole project really nice, one of the main things, which you have to do is to implement all of those features, which in the future may really help the user, not annoy or bore him. That is why the usage of push-notifications becomes more and more popular for a year to a year.

8. Personalization

For a better understanding of the inside and background structure of an app you are arranging, one of the most important things, that you have to do is to allow the users to personalize it. In other words, make them feel free to alter the main pieces of the interface in a manner they want, what will not affect the core functionality of an application. In case if people are able to arrange their working place in a way they want, it means, that they might have a desire to come back more and more frequently.

9. Simplicity of the Registration

Do you remember these giants forms, which you were obliged to fill in before the registration on a website? It was awful, wasn’t it? However, nowadays with the development of Google and Facebook, the registration is not a problem at all. Remember, in order to make the lives of the app users much more comfortable and convenient, remember to implement a fast registration machine into an app.

10. Avoid Annoying Ads

I believe, that you know, how annoying can be all those advertising extensions, which you can see in various applications. However, in good ones, all the ads have to be located in the places, where a user can see them but will not be irritated with their presence. So, keep in mind, that for a successful usage and promotion of an app, it is a great mistake to put banners, which equals the screen size.

Conclusion

Finally, the improvement of app conversion is not an easy task at all. In that job it is a really important work with the details in a really precise manner and be as accurate as only possible, that is why one of the main qualities of any person involved in that field is vigilance and an opportunity to keep balance.

Tuesday, 19 December 2017

Why Are Emerging Market Currencies Volatile?

www.toptal.com

BY PEDRO AUGUSTO KNIPHOFF - FINANCE EXPERT @ TOPTAL

Executive Summary


Emerging market currencies are volatile and illiquid, which restricts financial freedom
  • Innovation and attention in international money transfer tend to focus on remittances from developed to developing countries. The often ignored "reverse remittances" that go in the opposite direction receive much less.
  • Emerging market citizens experience restrictions in their financial management as a result of wide currency spreads, high commissions, long delays, and red tape bureaucracy.
  • Volatility, a measure of standard deviation for asset price moves, is high for emerging market currencies and their markets are illiquid. These both contribute to restrictions that consumers and businesses endure.

What contributes to the volatility and illiquidity?
  • Economic policy in developed markets can inadvertently spill over and influence the economies of emerging markets in drastic ways. The lack of clout that relatively smaller markets have versus the Federal Reserve or ECB means that actions such as quantitative easing cause irregular inflows into emerging market currencies.
  • $7 trillion flowed into emerging economies as a result of Federal Reserve QE initiatives post-2008.
  • Emerging market economies are dominated by commodity export industries. The prices of commodities are almost perfectly correlated to emerging market currency prices, which brings inflationary boom periods and painful bust cycles.
  • Government regulation, such as capital controls, intend to stabilize economies through restricting investment inflows and outflows. In emerging markets, if this is too severe or erratic, it can harm competition and deter investment. It can also encourage black markets, which further undermine faith in economies.

How can emerging market currencies be stabilized?
  • Removing a reliance on commodities allows a country to diversify its economy and prepare better for economic shocks. In addition, investing commodity proceeds into diversification projects, or owning more of the value chain of a commodity’s production cycle, can help to breed sustainability.
  • Dollarization is a quick fix for an economy. It involves a country discarding its "soft" currency and switching to a “hard currency” as legal tender. It can immediately abolish inflationary pressures, but removes the nation’s rights to sending interest rates.
  • Currency union blocs can also bring together a more diversified and liquid economy for a group of nations under one currency, building clout and stability.
  • Use of cryptocurrencies by emerging market consumers can give them more liberation to manage their personal finances. A true long-term and sustainable success from this movement would be for countries themselves to introduce their own cryptocurrencies and digitize their economies.
I enjoyed reading Mauro Romaldini’s recent article about international money transfer; we are clearly experiencing exciting times for innovation in this sector. But it made me think about the often ignored other side of the remittances coin: what about sending money from developing countries to developed ones? I am Brazilian, I live in South Africa, and I will be moving to Switzerland soon to study. Sending money abroad for me is far harder, uncertain, and expensive than just opening an app and pressing send. Why is this the case for senders of “reverse remittances”?
The financial management issues that I face as a citizen from an emerging market country are broadly the following:
  • Wide bid/ask spreads when converting currency
  • High commissions for sending money
  • Long delays and processing times
  • Red tape, quotas, and compliance requirements
Developing countries have volatile and illiquid markets, across the debt, equity and currency spectrum. Charts 1 and 2 below demonstrates this for emerging market currencies, whereby volatility has more variance and trading volume is largely consigned to G10 currencies.
emerging market currencies are more volatile and less liquid than their developed counterparts
I believe though that these characteristics are end results of situations that manifest from economic decisions taken in both developing and emerging economies. In this article, I want to address what contributes to emerging market volatility and illiquidity, and their implications upon the financial freedom of citizens and businesses. In addition to this, I will make some suggestions about how they can be solved.

Developed Markets Cough, Emerging Markets Catch a Cold

Currencies are divided into hard and soft types, the former being seen as reliable, widely accepted, and a store of financial value. There is no defined list of them, but the more developed a country is, the more it’s assumed to be one that holds a “hard currency.” That’s why international online shops sometimes list prices in US Dollar or Euro, or when you go on an exotic holiday, certain services are priced in a non-domestic currency. International trade also gets priced in hard currencies. India, for example is the second most populous country on Earth, yet as Chart 2 shows, the Rupee is not traded en masse.
The level of a currency relative to another has ramifications on a country’s ability to import and export. A weak currency allows it to export more through increased competitiveness, but it then results in the importation of goods becoming more expensive. As such, the exchange rate is often a core metric for governments and central banks to focus on to drive their economies. Pegging is a direct way to influence a currency, but often tangential regulatory rules or rhetoric can suffice just as effectively.
My argument here is that due to their lack of relative economic size, emerging market currencies suffer from the indirect spillover effects of interventions made by developed economies.
After the 2008 Financial Crisis, the economies of many western nations began implementing programs called quantitative easing (QE), which were intended to stabilize their economies via their central banks buying debt assets from banks. This allowed banks to shift illiquid (and, at times, overvalued) debt off their balance sheets for liquid cash with the intended effect of them then being able to lend the money to stimulate the economy. The effect of this was that it severely bulged the balance sheets of central banks relative to their economies’ GDP.
effects of quantitative easing on developed countries' balance sheets
For developed market investors, this created issues, as the QE programs brought down bond yields through their demand increasing prices. Where would they invest now to find yield? A financial analyst would, of course, recommend higher yield emerging markets, the result of which caused demand for emerging market currencies to increase. It is estimated that $7 trillion of Federal Reserve QE dollars flowed into emerging markets post 2008. These inflows came with two potentially negative externalities for governments; leave them unchecked and their currency would appreciate and harm exports, or print money to depreciate the currency and watch a borrowing bubble emerge. Brazil is one such country where the effects of QE have severely affected the domestic economy.
The sheer power of the developed market central banks is a force that developing equivalents cannot counteract. It creates abnormal inflows into their currencies, inflows that in a rational market may not happen. Because these inflows are typically in institutional hot money form (i.e., funds buying securities in the secondary market) and not usually attached to long term projects, the money can just as quickly leave again and leave a long-term mess behind it.

Commodities

Trade between countries can come in the form of services, products, or commodities. Without going too much into macroeconomics, comparative advantage dictates that product and service trade is more difficult to succeed in than commodities—coal is the same, irrespective of where it is extracted. Thus, trading in commodities tends to be the easiest, quickest, and potentially most lucrative route for emerging market countries to export and generate GDP. Typically, countries are bequeathed with rare natural resources, making them a natural component of an export base, but often due to their underdeveloped nature, selling commodities is the only option for trade.
Aside from notable exceptions such as Canada and Australia, Figure 1 below demonstrates the dominance of exports within the economies of developing nations.
emerging market economies predominantly export commodities
The effect of this dominance is that emerging market economies are intrinsically linked to the performance of commodity prices. This creates two extremes, a phenomenon known as the Dutch Disease:
  1. When commodity prices rise, the currency of the exporter rises and they import more. Other domestic exports suffer from uncompetitive pricing and the country in effect “doubles-down” on commodity success.
  2. When commodity prices fall, the local currency falls and budget deficits quickly rise and there is no export industry to fall back on.
The culmination of this is that emerging market currencies are seen as proxies to the price of commodities. Chart 4 below tracks the six-year performance of a commodity index versus a basket of emerging market currencies; as it shows, they are almost perfectly correlated.
volatility of emerging market currencies versus developed market currencies
This link means that governments and central banks in emerging markets have a diminished control over their currency—the global commodity markets largely dictate their fortunes. Because of this, currency volatility in emerging markets is high, as its performance is tied to macroeconomic and geopolitical concerns on a global basis. Market makers offer less liquidity and wider bid/ask spreads in such currencies, as risk mitigants, due to reduced faith in developing countries’ abilities to stabilize currencies via domestic fiscal and monetary measures.
OPEC is a body that exists to provide more stability to emerging market oil producing nations through managing their collective quotas to influence the price of oil. However, as can be seen with the emergence of shale oil, the effect of OPEC may diminish over time due to factors, such as shale innovation, far beyond its control.

Regulation

Capital Controls

In light of their fragile economies and currencies, the governments of emerging economies have continuously regulated capital movements via market intervention. These restrictions prevent unrestricted movement of money in and out of countries, with the intended goal that they prevent currency volatility and assorted inflationary swings. There are four broad types of capital controls:
  1. Minimum stay requirements: Lock-in periods for money to stay in the country
  2. Limitations: Quotas on inflows/outflows
  3. Caps on asset sales/ownership: Limitation of investment into certain strategic assets
  4. Limits on currency trading
One of the most popular and easiest implementations of this is via taxes and tariffs, for example, on credit card purchases in foreign currencies. Restricting investment into strategic areas such as banking also maintains local monopolies under the auspices of preventing reckless competition, but the negatives from this are that innovation and service levels are diminished. I argue though that capital controls such as these can be applied overzealously, and their effects can add to the instability of emerging market currencies and discourage investment.
Professor Michael W. Klein classifies countries into three buckets by their use of capital controls:
  • Walled: Long-term capital control measures
  • Gated: Systems in place to be turned on/off episodically
  • Open: No system of control
Figure 2 below shows a 2012 classification of these by the relative wealth of countries.
how do capital controls correspond to economic wealth
The consensus shows that developed nations deploy “open” policies, while mid-to-low income nations use capital controls through “gates” and “walls”. Klein’s study, though, noted the popularity and ineffectiveness of gated systems, where episodic control is exercised during times of economic stress. Despite these systems offering more liberation than a pure walled system, their sporadic use makes them easy to evade:
“Episodic controls are likely to be less efficacious than long-standing controls for a number of reasons. Evasion is easier in a country that already has experience in international capital markets than in a country that does not have this experience. Countries with long-standing controls are likely to have incurred the sunk costs required to establish an infrastructure of surveillance, reporting and enforcement that makes those controls more effective.”
Because gated capital control policies are often deployed as fire-fighting mechanisms, they can be ill-thought-out and easy to evade for some. When investors see a country with gated measures, they get scared. They want to invest in a country that is consistent, one that doesn’t change the rules and allows them to withdraw proceeds easily. The fear of gates drives insecurity up, which is why currency volatility will spike during tense moments when it’s expected that they will come into force.

Black Markets

Aside from discouraging investment, capital controls can create parallel markets, which further undermine faith in an economy. Usually as a result of restrictions on foreign currency or unrealistic pegs, black markets are created. In shifting to these, market participants bypass formal institutions, slowing down the velocity of money in the formal economy.
Because the black market exchange rate will often reflect the true purchasing power parity rate of the currency, foreign investors are further discouraged from investing in the country through expensive official channels. Some examples of the overvaluation of official exchange rates versus their black market equivalents shows this disconnect (at December 2017):
CurrencyOfficial Rate (to 1 USD)Black Market RateOvervaluation
Angolan Kwanza165 [source]410 [source]148%
Nigerian Naira305 [source]362.5 [source]19%
Venezuelan Bolivar10-3,340 [source]>100,000 [source]2,894%

How Can This Situation Improve?

An obvious way for barriers of international payments and trade to be removed in developing countries is for them to develop economically. South Korea, for example, was a poor country in the 1960s with a GDP per capita of below $100; as of 2017, it is now considerably wealthier and this same figure has risen to $27,538. This growth has corresponded with the liberalization of its financial markets and the nation now stands at 23rd in the world for economic freedom.
In this section I will describe some specific interventions that can be made to achieve this.

Remove Reliance on Commodities and Diversify the Economy

The first suggestion is the most obvious but hardest to implement. Creating a diversified economy allows for “hedged” economic performance to coexist. For example, If a country manufactures finished goods from its extracted commodity, a lower commodity price will shock and subsequently benefit the manufacturing industry from cheaper inputs.
The extraction process of commodities can tend to follow a smash and grab mentality, where rents are secured, but panic ensues when prices drop or reserves are exhausted. One such measure to build an economy up from commodities is to set up a sovereign wealth fund. When you see Middle Eastern sovereign wealth funds invest in indoor ski slopes, or sports teams, they’re not impulse buys—they show intent to help the economy diversify.
Another measure is to seek more collaboration with international mining firms for skill transfers. Despite holding the world’s largest potential deposits of lithium, Bolivia has been stubbornly refusing overtures from international miners to extract them, due to its own desire to participate in the industry and produce finished goods itself. Seeking a middle ground of partnering up will allow for technical knowledge to disseminate quicker and let the national economy learn from the process.

Dollarization

A silver bullet solution is to “dollarize” the economy, replacing local tender with a hard currency issued by another country. As per the name, this is most common with the US Dollar, but in Europe, both Montenegro and Kosovo employ the Euro as official legal tender despite not being in the Eurozone, nor the EU itself.
Currency volatility will naturally subside under dollarization scenarios. However it’s not a natural prelude towards easy payments and movement of capital. A dollarized country also forgoes its monetary policy tools, leaving tax as the only major lever that a government can pull to direct the economy.

Currency Unions

The first cries against a currency union would be similar to those against dollarization: The domestic country would be “outsourcing” monetary policy mechanisms to a foreign body. But as benefits of the Euro have shown, it can install a culture of best practice and actually having oversight on a consensus-led basis by a central body may ensure that better decisions are made.
The West African and Central African Francs are rare examples of such unions in developing markets. Derived from a historic colonial agreement, they are guaranteed to be converted by the French government to the Euro at a set rate, which is an advantageous quirk that other currency unions will not have. Moves to expand currency unions in Africa, via the Eco, could provide the clout needed for emerging market currencies to stabilize, gain more liquidity and open up the economies of the respective nations.

Cryptocurrencies

For consumers, storing wealth and making international payments via cryptocurrencies would be an easy way for them to bypass the idiosyncrasy of their country’s currency. They counteract the bureaucracy, bank monopolies, and opaque regulations that restrict them. Of course, in doing this, consumers switch their currency volatility to that of a cryptocurrency, which arguably can be as hard to predict as their own fiat currency.
Aside from popular cryptocurrencies like Bitcoin and Ethereum, there are specific altcoins designed to offer a hard price commitment to a fiat currency, in a similar manner to a traditional currency peg. This allows users to purchase a coin and redeem it 1:1 with a hard currency like USD. The decentralized ledger system may provide more faith to an investor to store their value here, as opposed to a domestic banking system. These pegged cryptocurrencies are by no means perfect; some that have launched have fared poorly. The one coin that has gained traction, Tether, has also had problems of its own.
Both of these solutions are bypass measures and do not address the fundamental issues of the underlying economy. If consumers did just reject their domestic monetary systems en masse, their economies would suffer through an assortment of reasons like lower tax receipts and banks failing.
Cryptocurrencies, though, do offer a potential solution for emerging economies to digitalize their markets. There have been moves by some countries to adopt digital currencies—Tunisia, Senegal, and Ecuador, to name a couple. While it’s early days to say how effective these could be, or whether they are just PR noises, these moves do show promise. A distributed ledger would be one means to stop inflationary money printing by a central bank that answers to nobody; in addition, electronic money is also far easier and cheaper to transact for consumers.

A Path to Financial Flexibility for Emerging Economies?

Lack of clout, undiversified economies, and restrictive regulation are the contributing factors that make emerging market currencies more volatile than their developed counterparts. The former two contribute to the latter’s existence, which is what affects people like myself the most in terms of restricting citizens’ financial freedom. I am not arguing that emerging market countries should prioritize making it easier for people like me to buy things on Amazon.com, though—instead, that perhaps a more progressive approach could encourage more sustainable foreign investment and economic development, with the spillover effects granting more financial freedom to consumers.
With regards to the solutions, I would be fascinated to see an emerging market country introduce a cryptocurrency and attempt to roll out a digital financial economy. I will be keeping an eye on developments here, because it could usher in a completely new concept of macroeconomic financial management

UNDERSTANDING THE BASICS

What is meant by currency volatility?

Currency volatility is a statistical technique deployed within the financial industry to measure standard deviation (or variance) of asset returns. It shows the magnitude of positive and/or negative price change.