What we’re watching: Digital cash experiences in India, Togo and El Salvador

The advent of digital IDs

In poor countries, many are born without birth certificates or identity documents, a problem that prevents them from participating in modern society because they cannot prove who they are. Undocumented people can’t open bank accounts, and governments can’t track transactions made entirely in cash, meaning they can’t tax people they can’t find. In turn, this loss of revenue makes it harder for countries to provide much-needed public services. Before Adhar, a biometric identification system issued in India, more than a billion people in that country and the Delhi government have faced this challenge. The Aadhaar system uses fingerprints and iris scans to establish identities and bring people onto the grid. It provides a unique 12-digit number to each user and allows authorities to transfer funds for state pensions, fuel subsidies and other government assistance directly to bank accounts created for people who have no never had access to such things. In many ways, this system is a triumph in human development, but there is a potential downside: in a country where the rule of law is not firmly entrenched, if a government can pour money directly into your bank account, he can also withdraw it. . This power could one day become a tool of coercion that political leaders in countries that use similar identification systems could use to enforce obedience on millions of people. There is also the risk of hacking and identity theft, a problem that can only be managed gradually as problems arise. These are risks that we will see in many developing countries in the years to come.

Digital transfers to the rescue!

When pandemic lockdowns forced millions out of work, the government of Togo, a small West African country, faced the challenge of how to deliver emergency cash transfers to people quickly and safely. . Keeping people waiting for hours in crowded government offices was not only inefficient; it was a public health risk. In 10 days, the Togolese government installation NOVISSI, a digital money transfer system accessible via a mobile phone. Using machine learning to identify the most vulnerable people, the program quickly covered a quarter of Togo’s adult population. Around the world in Chile, meanwhile, the Cuenta RUT digital transfer program has secured pandemic relief funds directly and safely to 2 million of the country’s poorest citizens. In emerging markets, there are now over 150 digital cash transfer programs today. They get quickly cash in needy hands while introducing people more broadly to digital financial services. But technology alone isn’t always enough: After a recent digital cash transfer pilot program for disaster relief in Bangladesh, for example, only a small percentage of recipients continued to use the tools. There is still work to be done to overcome trust issues, confusing interfaces and, in the case of women, cultural norms that have limited their access to platforms.

A cautionary tale about crypto

Just over a year ago, the small Central American nation of El Salvador became the first country in the world to adopt a cryptocurrency – in this case, bitcoin – as its national currency alongside the dollar. American. The government of Nayib Bukele, a populist millennial with an authoritarian side, has spent millions to spur the idea. Bitcoin, he believed, would expand financial inclusion in a country where only about a third of the population has a bank account, strengthen El Salvador’s financial independence and rationalize remittances, which constitute A quarter of GDP. Things started pretty well: the state created digital wallets for the population and gave everyone $30 worth of bitcoins as a bonus. There were even plans for a Bitcoin City funded entirely by coin-backed bonds. But so far the strategy has been more downside than boom. The currency has lost 60% of its value since its adoption, which is not nothing in a debt-ridden country that needs the help of the IMF. And among the public, Bit never quite hit: Only 20% of Salvadorans used bitcoin after spending the initial $30 node, and only one in five businesses accept the currency. Additionally, less than 2% of remittances last year arrived in the form of bitcoin. The biggest challenges so far have been lack of trust in cryptocurrencies and insufficient access to cellphones (only 2 out of 3 Salvadorans have one), which have hampered the project.

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