Can cryptocurrencies reduce global poverty?

12Dec 2017
The Guardian
Can cryptocurrencies reduce global poverty?

BEHAVIOURAL economics guru Richard Thaler, this year’s Nobel Prize laureate in economics, has showcased that people are economically imperfect.

Since humans are irrational, we don’t fit neatly into economic models; we have cognitive limitations, social preferences, or, dare it be said, big problems with self-control.

When it comes to decisions about saving our money or investing wisely in order to ensure predictable returns and a safer future, forget it. We tend to procrastinate, and most often, worse, we opt for instant gratification. The easy fix, even when we know better. It’s in the numbers. The sad truth is that we are hot-wired to make bad economic choices.

Unless – and here is the brilliant twist …. unless we get paid to act counter-intuitively. If rewarded, most people will do almost anything. Now let’s make that sound good: meet financial incentives (FIs). With FIs it is possible to influence the human decision-making process. Crudely, you have to pay people to take money. In the development world though, this is a golden fleece.

A study in rural India found that rewarding mothers with lentils once their child completed a stage of immunisation increased full immunisation from 5 per cent to 38 per cent.

In Mexico, the federal government issued micro cash transfers to low-income families on a monthly basis as a reward for school enrolment, which increased by nearly 15 per cent.

And in Northern Uganda where I conducted research on Unconditional Cash Transfers (UCTs), we found that 85.7 per cent of participants reported turning a profit with their businesses after they received UCTs.

Fast-forward to the rage of ICOs and the shower of crypto tokens raining fresh funds onto the world of social impact start-ups and blockchain solutions to global problems.

Can the reasons why people put off getting regular health checkups be remedied by FIs? And can the newly discovered token-system of nourishing solution providers become FIs and applied as the miracle tool against poverty?

The United Nations’ number one sustainable development goal is to eradicate poverty. A huge part of the challenge is that sheer number of people without access to any financial services, an estimated 3.5 billion under- and unbanked people globally.

If crypto coins were part of a behavioural approach to financial services, the results just might be a redefinition of the term tokenism. A significant portion of the world’s poor could be on boarded, a first step to increasing economic well-being.

The challenge is admittedly tough. Inflation and currency depreciation regularly wreak havoc across emerging markets, the very markets that are experiencing rapid growth and are the ripest for financial revolution.

With low banking engagement, young populations, and high mobile penetration, an economical solution to financial services clearly requires something new and low-cost, like cryptocurrencies.

Consumers living in poverty require low-cost, instantaneous transactions. Currently, the flavour of the month is still mobile money, which has processed over $269 billion over the last 12 months in transactions.

Two-thirds of these transactions had a total value of under $0.80. Mobile money has been a step in the direction of greater inclusiveness but it continues to fall short as a viable option for impoverished consumers as they simply cannot afford to pay the 2 per cent or more of their earnings just to receive it.

Welcome the cross-border cryptocurrencies, or crypto-tokens built on the blockchain. With some calling them the next iteration of incentives, Crypto FIs not only represent cheaper transaction costs and offer smaller divisibility but the potential to incentivise behaviour will enable global inclusive finance.

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