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How Can Crypto and CBDCs Help Communities?

This August at The Fintech Times, we’re looking to highlight some of the amazing things fintechs are doing around the world. We are always hearing about the ‘latest groundbreaking innovation doing good for the community’, but are these innovations doing good for those in an already advantageous position, or are they helping make the financial world more accessible? To us at The Fintech Times, fintech for good means companies looking to help people who desperately need it, prioritising financial inclusion and sustainability.

Nearly two billion people lack access to the traditional financial system.Technology innovation and adoption provides a real opportunity to democratise this system by opening a market up for everyone.

With cryptocurrencies touted for having potential to enable social and economic growth throughout the world, including in developing countries by offering easier access to capital and financial services, we ask ‘how can crypto and central bank digital currencies (CBDCs) help communities?

Great returns for everyday people
Tristan Roozendaal
Tristan Roozendaal, CEO, Centralex

Tristan Roozendaal is a blockchain entrepreneur and the CEO of digital asset platform Centralex. He believes ‘everyday people’ can access the great returns the crypto market offers. But for those that still lack confidence trading on the crypto market, the implementation of central bank digital currencies could also help.

“The current state of the economy is making traditional personal financial life goals a thing of the past. Combine low interest rates with rapidly increasing inflation, and money sitting in a bank account effectively loses value every day. Hopeful homeowners and those saving for a rainy day need to search out alternatives to mainstream saving, and crypto is providing that.

“Previously, in lieu of a savings account, one of the only ways to yield returns was to invest in real estate or the stock market. However, in traditional finance, high returns are generally only available to those who can afford to invest with financial institutions. With crypto, investors only need an internet connection to participate, opening up the prospect of returns to a much larger population.

“Of course, this can be risky. The crypto market is volatile and the less informed individual can be prone to scams. However, by thoroughly researching investment opportunities and businesses within the space, everyday people can safely invest through trusted exchanges, accessing the great returns the crypto market offers.”

“The pound is currently at 1.75 per cent interest rate, the Euro is 0.5 per cent. A CBDC would allow for seamless interaction with cryptocurrencies where the interest rate is higher. This could democratise pensions, giving consumers more control, and garnering a more profitable pension scheme than traditional models. The same could be true for mortgages allowing for crypto down payments on properties with the interest being paid accordingly.”

Crypto gives back control
Toby Gilbert
Toby Gilbert, CEO & co-founder of Coinweb

For Toby Gilbert, CEO and co-founder of cross-chain computation platform Coinweb, there is little doubt as to where society is headed when it comes to the use of cash.

“In many countries around Europe, the authorities have vilified the use of it, like Sweden where it is almost banned, and the UK where if you handle any amount in excess of £1,000 you better be able to clearly justify where it came from lest it becomes a police matter. Cash machines are disappearing off high streets at a faster pace than phone booths!

“Less developed countries whose societies relied upon cash for the most part to operate have managed to transition considerably faster than others. China and South-East Asia are at the forefront of near-instant mobile bank-to-bank transfers using products such as e-wallets and QR codes. The telecommunication networks across Africa revolutionised the way remittances were made, as a result speeding up the transfer of funds between counter-parties acting as a catalyst to local businesses who relied upon cash settlements before.

“Yet all of these solutions, while massive improvements on the reliance on cash, are utilising existing centralised platforms that are being operated on a ‘for profit’ basis that typically are not acting in the end user’s best interests vs. their bottom lines.

“Cryptocurrencies including CBDCs in many cases remove the interests from the centralised parties’ hands and place them firmly back in the hands of the end user. With the ability to choose the network (blockchain) enabling near-instant remittances, gives the freedom to the end user to manage their cost base as a trade-off against speed, firmly places the control back in the hands of the customer who up until now has been taken advantage of by a monopoly of different actors. Leaving to one side the obvious effect of greatly increased liquidity at a reduced cost, the psychological effect is almost as equally, if not more important.

Boost economic activity
Lissele Pratt
Lissele Pratt, Founder at Capitalixe

As co-founder at Capitalixe, Lissele Pratt helps companies in high-risk industries obtain the latest financial technology, payment and banking solutions. She says that cryptocurrencies and central bank digital currencies have the potential to help communities in several ways.

By providing a way to transact without the need for banks, reducing the risk of inflation, and facilitating international trade, they can boost economic activity and reduce poverty.

She says: “For one, they can provide a way for people to transact without the need for traditional financial institutions. This can be particularly helpful for those underserved by the banking system or living in areas with weak or unstable fiat currencies. According to a World Bank report, an estimated 1.7 billion adults are unbanked. With crypto and CBDCs, these individuals would have a way to store value and make payments without relying on banks. This could help reduce poverty and boost economic activity in communities worldwide.

“Another way that crypto and CBDCs can help communities is by providing a means of payment that is not subject to inflation. In many countries, fiat currencies are subject to high inflation levels, which can erode the purchasing power of people’s savings. A recent report found that inflation rates have doubled in 37 of 44 advanced economies over the past two years. Countries like Turkey and Israel have seen their inflation rates skyrocket in 2022, with Turkey’s rate reaching 54.8 per cent.

“With crypto and CBDCs, communities can have a form of money that is not subject to inflationary pressures. This could help to preserve the value of people’s savings and make it easier for them to plan for the future. With recent developments in the field of stablecoins, there is also the potential for crypto and CBDCs to be pegged to stable assets such as gold or the US dollar, further reducing the risk of inflation.

“Finally, crypto and CBDCs can help to facilitate international trade by providing a way to make cross-border payments quickly and cheaply. Traditional methods of making international payments, such as wire transfers, can be expensive and slow. With crypto and CBDCs, communities can instantly make international payments at a fraction of the cost. This could help to boost trade and economic activity between countries.”

A market for all

The traditional financial market has been an exclusive club and most of us weren’t invited, says Marcello Mari, CEO at SingularityDAO, a democratically governed decentralised autonomous organisation stewarding a non-custodial smart contract network.

Marcello Mari
Marcello Mari. CEO, SingularityDAO

He says: “Successfully trading forex, the stock market and other traditional trading methods often requires sophisticated trading tools, or a savvy investment manager, neither of which comes cheap. This means that while the rich can get richer, everyday individuals often struggle to get past the starting line. The inception of crypto has created a unique opportunity to change that.

“The crypto market is open to everyone – all that is required is internet access. This means that everyday individuals now have the freedom to access the same high returns associated with financial trading but without the initial investment required.

“Despite this, we still have some work to do. Due to its volatile nature and the fact that it is open 24/7, the crypto market is set up to favour trading tools and robots, as opposed to manual trading by investors. Building these tools is a specialised skill, which means they often require a lot of money to create.

“If we want crypto to live up to its promise of democratising investment, we need to ensure that these tools are available to everyone, regardless of background or wealth. If not, we risk replicating the same mistakes as traditional finance.”

Universal access
Omid Malekan
Omid Malekan,
Author

Cryptocurrencies, stablecoins and ultimately CBDCs are suitable for both ‘the poor and rich’ says Omid Malekan, adjunct professor at Columbia Business School, where he teaches on crypto/blockchain, and the author of new book Re-Architecting Trust: The Curse of History and the Crypto Cure for Money, Markets, and Platforms.

“Cash has always been the most universal and inclusive financial instrument. Anyone can use it, regardless of race, class, age, legal standing or nationality. But cash doesn’t work well in the digital era and is increasingly replaced by bank-based services such as cards and fintechs. The problem with these services is that marginalised and impoverished communities who are unbanked cannot access them, so as societies go cashless, those who need access to financial services the most are denied them.

“Cryptocurrencies, stablecoins and ultimately CBDCs can help restore this balance because they rely on cryptographic identity, which is universal, as opposed to legal identity (KCY) which many marginalised people don’t have.

“They also rely on different business models (if any) from bank-based products like cards. Put differently, a stablecoin issuer or central bank that creates a CBDC does not need to make money from transaction fees the same way a credit card company or fintech does. These blockchain based instruments also work around the clock, settle instantly and flow across borders, making them superior payment instruments for poor and rich alike.”

Going cashless
Kunal Sawhney
Kunal Sawhney, CEO of Kalkine

Crypto and CBDCs an contribute a lot toward becoming a cashless society and thereby obliterate every drawback of transacting in cash, suggests Kunal Sawhney, CEO of independent equities research firm Kalkine.

“Minting comes with a cost and cash transactions also facilitate corruption. A huge amount of money can be exchanged without a trace leading to surreptitious dealings everywhere. However, cashless, or digital transactions are entirely transparent with a host of other benefits.

“Even in personal finance, opting for cashless transactions can contribute in a positive manner. Digital transactions can be easily done across countries in a completely legit way. More and more countries are now trying to emulate the Swedish model, where almost all transactions are done digitally. So, crypto can be a great alternative for societies trying to go cashless whereas CBDC can be the quintessential facilitator.”

Make real-world difference

Because cyptocurrencies, especially stablecoins, allow lower transaction costs, faster executions and saving on foreign exchange costs for cross-border payments, they can be used to make a difference in the world, says Uldis Tēraudkalns, CEO of Nexpay, a Lithuanian fintech startup that provides banking services and infrastructure for individuals and the digital assets industry, forex providers, and gambling and gaming platforms.

Uldis Tēraudkalns, CEO, Nexpay
Uldis Tēraudkalns, CEO, Nexpay

Tēraudkalns says: “In terms of making a social impact, crypto could also help make the donation process smoother and allow recipients to receive money faster. Especially on the speed side – crypto allows us to move money and gather funds quickly in unprecedented circumstances. As we see in the situation with the Russian invasion of Ukraine, a global campaign was launched to donate crypto funds to the Ukrainian military. Individuals, businesses and others across the globe were able to transfer this crypto within minutes — not weeks.

“Such experience would also be advantageous in fundraising for the areas affected by natural disasters, where the speed of monetary assistance is often the difference between life and death. Use cases could also include the tackling of hunger and poverty where it’s most needed. At the moment, few know how to reach those people. In the future, crypto could help reach those individuals, avoiding bureaucratic and often corrupt governmental middlemen.

Crypto also allows different solutions to be developed using blockchain but delivering social benefit in the real world. For example, Trees for the Future initiative is aimed to gather donations quicker and with lower transaction costs by using blockchain to plant trees and save existing forests.

On the other hand, crypto might allow the unbanked population access to cheaper transfers. Of course, the regulation needs to keep up so that cryptocurrencies don’t become a widespread way of hiding money from the government. CDBC would be a good tool for the people in emerging markets, for example, India, to gain access to digital payments.”

But there needs to be trust
Alex Reddish
Alex Reddish, MD, Tribe Payments

Tribe Payments provides payments processing for issuers, acquirers and fintechs. Its MD, Alex Reddish, warns that while the move away from cash could boost financial inclusion, there is work to be done to establish trust.

“In this day and age, those in rural areas are more likely to have access to an internet connection than they are to a physical bank branch, the advantage of crypto and CBDCs in this scenario is that of accessibility.

“Since the transition away from cash, CBDCs have long been touted as a solution to lower barriers to financial access and open up new pathways of upward mobility, but if central banks are going to achieve this then they’ll need to earn public trust to gain any sort of hold on the payments ecosystem.

“The same thing can be said for cryptocurrencies. A common use of crypto in communities is likely to be for high-speed global remittances. By providing low fees alongside the ability to transfer sums instantaneously, it can drive financial growth within these communities. However, without harnessing the trust of the people, these predicted use cases will just be words with no action. Trusted brands, relatable use cases and continuing to build simple experiences will be key in generating this trust.”

 

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