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Demonetization Fosters Financial Exclusion

by James Shepherd-Barron | May 14, 2018

Financial exclusion, excluding someone, playing soccer and excluding a friend
James Shepherd-Barron is a disaster management consultant, author of ‘Absolute Disaster’ and humanitarian adviser to three cash-related industry associations (The ATM Industry Association, The European Cash Management Companies Association, and CashEssentials).

This article was first published on 
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Aid agencies, governments, and philanthrocapitalist donors are inadvertently supporting financial exclusion of the poorest in society by preventing them from using their preferred, and often only, means of payment … cash.

The richest man in the world, Jeff Bezos, founder and CEO of Amazon, can apparently think of nothing better to do with his vast $139 billion fortune than spend it on space exploration [1]. In a high-tech world growing more lopsided with inequity and social injustice by the day, this could be considered more than a little eccentric. New York Times columnist Nicholas Kristof was not alone in politely suggesting that Bezos could put his money to better use in the today’s world rather than tomorrow’s by, say, making primary education universal worldwide, thereby single-handedly ending global illiteracy and changing the world forever.

Perhaps he will. Presumably he’ll still have plenty of loose change even after a few trips to Mars and back. But he probably won’t. And he won’t because the poverty eradication business is messy, complex, and doesn’t lend itself to what Min Li Chan of Buzzfeed calls “techno-utopian solutionism.” Not that this has stopped his fellow Tech-Titan Bill Gates from attempting to do so.

In a hybrid form of charity dubbed ‘philanthrocapitalism’ by sceptical centre-left economists, Bill Gates and other like-minded mega-wealthy individuals have developed a form of corporatized social responsibility which has already disrupted the health and agriculture sectors across the developing world [2] in their own image. And they are now trying to do the same with cash.

In deliberately blurring the distinction between altruism and interests, the blend of charity, scale, self-interest, and market-led business modelling that philanthrocapitalism represents can do harm by skewing public policy-making towards the promotion of private interests at the expense of social and economic justice. This is what India’s experiment in demonetization was all about in November 2016. “In a single stroke,” explained Zoya Hasan of The Hindu, “nearly 86% of the currency in an economy powered by cash transactions, where over half the population are without bank accounts, was wiped out. This move disrupted the lives and livelihoods of ordinary people, led to widespread hardship for the poor, major job losses, and over a hundred deaths. Ultimately, it is the poor who suffered – and continue to suffer – the most.”

This policy was not just supported, but instigated by Bill Gates’ foundation. “Their agenda,” says the think tank Global Justice Now, “follows a specific ideological strategy that promotes neo-liberal economic policies, corporate globalization, and the technology this brings.” The net effect is that technical solutionism is digitising – and therefore privatising – the public good called cash at the expense of the poorest in society.

This is of particular concern when it comes to humanitarian cash for one very simple reason: If the option of paying with paper money for essential relief items is eliminated, the interests of the poor and disaster-affected diverge from the interests of the payment providers.

For all its limitations, cash is an accessible, reliable, and cheap technology whose efficiency and utility has been proven time and time again in times of crisis. From Florida to Domenica, people threatened by hurricanes Irma and Maria last year lined up at ATMs across the Caribbean to stock up on cash [3]. If the option of using it is taken away, everyone except the electronic payment provider is worse off.  In effect, this means that those advocating for financial inclusion are, wittingly or unwittingly, supporting financial exclusion of the poorest in society by preventing them from using their preferred, and often only, means of payment.

Why then is the Better Than Cash Alliance (BTCA), a self-selecting group of UN agencies, governments, NGOs, and private sector interests, including the Bill & Melinda Gates Foundation, MasterCard, PayPal, and Citibank, seeking to eradicate cash? Members of this alliance are united by two things: A shared interest in making sure cash is perceived as a technological relic; and a (well-founded) desire to combat global poverty through a policy of financial inclusion, a process once described by PayPal CEO Dan Schulman as “bringing (poor) people into the (banking) system.” This is a laudable aim, but doing so by limiting access to cash is, as India’s experiment in demonetisation recently proved, authoritarian, undemocratic, and counter-productive.

Since its formation by the Gates’ foundation and the US government in 2012, the Better Than Cash Alliance’s simple, logical, and apparently cost-effective strategy has gathered momentum more or less unchallenged. After all, who can gainsay an argument where the theoretical benefits of a digital cashless society – decreased tax evasion and cheaper, faster and safer transacting among them – are so apparently compelling?

But this is where things get a little murky, because when the private sector decides to embrace a noble cause ‘in order to create a better world,’ one doesn’t have to be too much of a cynic to ask, ‘for whom?’

Bill Gates has himself recognised the reality that, given the opportunity, beneficiaries always seek to ‘cash out’ by transforming digits to banknotes whenever they can. At a Financial Inclusion conference in Washington DC in 2015, he said, “Increasing digital financial inclusion brings dramatic benefits … but it won’t completely replace cash.”

The World Bank’s Consultative Group to Assist the Poor (CGAP) team took a similar view when it said in a 2017 position paper, “While the infrastructure and platform for financial service linkages may exist where crises occur, people still tend to cash out for immediate consumption.”

PayPal’s CEO said much the same when talking about trying to do business with the poor. “The world is quickly moving to digital,” he said, “and we are a leader in that. But there is still a ways to go. Until it goes fully digital, there will be a need to have a way to transfer money from the digital form into a cash form.”

He is not alone in seeing cash as a costly nuisance, a position that became clearer when he added, “The major competitor we have is cash. Right now, 85% of the world’s transactions are done in cash. That’s really what we’re trying to attack. The enemy is cash.”

Even when humanitarian aid is channeled through cash, enabling sustained use of broader financial services through one-off or time-limited cash transfer programmes has proven to be quite difficult. Mercy Corps, an NGO, offered this perspective in 2014: “. . . delivering aid through electronic transfers does not automatically lead to the uptake of new financial services by program participants. Instead, participants typically withdraw their full transfer when it becomes available and rarely use their new accounts after programs end. This holds true in both large government social safety net programs and humanitarian cash transfer programs.”

There is also the inconvenient truth that cash use around the world is not falling, but rising. According to a recent report by the Bank for International Settlements (BIS) [4], cash in circulation as a share of GDP is rising at a rate that far outstrips inflation. The report says that the most likely reason for this is fear; a fear born of mistrust in the global settlements system and the digital world on which it depends. A fear, in other words, that our world risks turning to digital dust before our eyes. For over two billion people around the world, including those without bank accounts and those that have been displaced by conflict and disaster, the fear is more tangible and more immediate. It is a practical fear of not finding a reliable power supply, far less a robust electronic payments network. For such people, cash is not an option but a necessity.

Furthermore, having access to mobile payment methods which do not facilitate ‘cashing out’ gives payment providers what the German journalist Norbert Häring refers to as “a license to extort by providing bundled services with hidden fees and cross-selling opportunities for credit, loans, and insurance.” Electronic payments also give rise to privacy issues and reduce the multiplier effect exerted when physical currency circulates in local markets. For the growing number of refugees and displaced around the world, this can significantly reduce the purchasing power of external donations at point of sale [5].

 “For the poor and disaster-affected, cash is not an option but a necessity.”

In addition, digital – particularly mobile – applications and the technologies that surround them is reshaping aid policy away from rights-based approaches towards markets-based ones which are more centralist, authoritarian, and technocratic in nature. Bill Easterly, a prominent development analyst and professor of economics at New York University, joins other academics in worrying about what he calls “a technocrats’ charter” where financial technologies developed by twenty-something millennials in California are seen to be the solutions to poverty, illiteracy, and just about everything else that’s wrong with the planet. “Bill Gates,” he says, “believes poverty will end by identifying technical solutions. My research, however, shows that the first step is not identifying technical solutions, but ensuring poor people’s human rights.”

It’s no coincidence that the preference for technological solutions over those that address systemic social, economic, and political issues tends to favour multinational corporations since it is they that develop and deliver the technology. This in turn lets governments off the hook by allowing them to downplay corruption, human rights abuses, and social inequality fuelled by tax evasion as causes of human suffering.

Meanwhile, no-one is suggesting that those involved in philanthrocapitalism are insincere in their desire to help poor people in developing countries through wider and deeper financial inclusion. After all, financial inclusion is recognised as a key enabler to reducing poverty. Nor is it suggested that the impact of philanthrocapitalism is not beneficial; much of it is. It is time, however, for the confluence of interests represented by groups such as The Better Than Cash Alliance, The Electronic Cash Transfer Learning Action Network, and the World Bank’s Consultative Group to Assist the Poor, and their influence on economic policies connected to imposition of the so-called cashless society, to be challenged, especially when it comes to humanitarian cash transfers.

Sure, a robust and resilient payments infrastructure can help address the challenges posed by humanitarian crises. Yet, it must be acknowledged that we have some way to go before the digital financial inclusion utopia arrives – if it ever does – and that, in the meantime, pragmatism must prevail.

More could be done to engage with the wider cash industry and not just those parts of it interested in electronic payments to ensure that all payments options are available to those who would benefit most from being included in the financial services system, the world’s poor. Instead of advocating for a cashless society, lobby groups should instead work with all those involved in managing cash for society, not just those with a vested interest in going digital, to ensure equal access to cash in all its complementary forms. It seems counterproductive at best, and contrary to the values of philanthropy at worst, to create a wholly digital cashless society which seeks to dismantle a highly valued global public good which is so relied upon by the world’s poor.

Perhaps it’s time Jeff Bezos considered what payment system he will need to develop for life on Mars.

SOURCES:

[1] Interview with Axel Springer, April 2018

[2] Curtis: Gated Development – Is the Gates Foundation always a force for good?; Global Justice Now, June 2016

[3] See https://www.nytimes.com/2017/09/29/us/puerto-rico-shortages-cash.html

[4] Linneman et al: Payments Are A Changin’ But Cash Still Rules; Bank for International Settlements Quarterly Review, April 2018

[5] Researchers have calculated multiplier effects of up to 2.5 for vouchers and cash transfers, meaning that for every $100 in cash assistance, $250 is generated in the local economy. A Food and Agricultural Organization (FAO) analysis of a social cash transfer pilot in Ethiopia, for example, found multiplier effects ranging from 1.26 to 2.52 (Kagin et al. 2014).


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