In the hype of initial cryptocurrency offerings, two new coins highlight the promise and peril of blockchain to revolutionize global financial inclusion. If handled correctly, cryptocurrencies and the underlying blockchain technology could transform the way money is remitted and hasten the spread of mobile money. If handled poorly, the same technologies could prop up authoritarian governments and limit the equitable spread of wealth.
Let’s start with the peril. Over the past three years, Venezuela has experienced near complete economic collapse and hyperinflation, despite sitting on the world’s largest oil reserves. Adding insult to injury, the country is financially ruined due to international sanctions and defaulted debts. With few options to kickstart the economy, President Nicolas Maduro offered a rather creative solution in December 2017: the petro.
A cryptocurrency backed by Venezuela’s vast oil reserves, the petro is the first cryptocurrency to be developed and backed by a government. The original idea behind cryptocurrencies was to remove the hand of government by using blockchain technology to ensure a currency’s ledger was decentralized and thus beyond the reach of government tampering.
The petro’s white paper gives the government an arbitrary level of control, which is the antithesis of why cryptocurrencies were invented in the first place. Ironically, what we now have is a corrupt government that has hijacked a financial democratization tool to create more inequality, without input or oversight from other governments and companies, or the international community. Yet, the scheme has somehow earned a reported $735m-5bn.
On the other end of the spectrum is Telcoin, a cryptocurrency designed to further financial inclusion. The Tokyo-based startup is working directly with telecommunications companies – the United Arab Emirates’ Etisalat being the only one confirmed so far – to disrupt the remittance market by lowering fees. This translates to cheaper transaction rates for consumers, while telecoms companies get cheaper international distribution via interoperability of digital wallets. The startup is run by a crew of private sector entrepreneurs with backgrounds in banking, mobile money, and telecoms. It’s the best of what cryptocurrency can be.
Traditional Remittance Process vs Telcoin Remittance Process
What’s the lesson to be learned here? Petro represents all that’s broken in financial inclusion policy: the government at the forefront, incomprehensible regulations, and the lion’s share of money going to a small elite. Meanwhile, Telcoin represents a promising policy direction: public-private partnerships, multiple independent actors working co-operatively, and finding a solution to a known industry hurdle, i.e. interoperability.
Technology is successfully lowering the barriers to sharing money. If handled well, countries and businesses can leverage fintech innovation to bring prosperity to the 2bn people who lack financial services. But if that technology is handled poorly, we risk rogue nations such as North Korea subverting international sanctions through similar means.
This is one way of approaching the challenge financial inclusion and technology’s role in it. Is lowering the cost and time needed to transfer money via blockchain a real game changer? What other solutions are out there to empower those sending and receiving money?