Can Cryptocurrencies Help the Nearly 2 Billion People Worldwide Without a Bank Account?

Oli Weiss

When introducing Libra to the global audience, Facebook was clear that part of their motivation in designing, building and launching the new coin was to spread access to finance to some of the world’s poorest communities.

Commonly known as being ‘unbanked’, around 1.7 billion people are estimated to not have a bank account or access to any form of financial services.

Many reasons could explain this staggeringly large number, from lack of infrastructure at a local, regional, or even national level; the prevalence of corruption eroding trust in financial institutions; the cost of using banking services being too high; or simply that many in the communities in question are characterized by a very high marginal propensity to consume due to low income, etc.

The consequences of this are serious for both the individuals involved – who find themselves unable to save, invest, make purchases on credit, earn interest, access loans and mortgages, etc – but it also generates major macroeconomic consequences too. 

The low savings rate has significant knock-on consequences for the supply of loanable funds, which in turn influences real interest rates and therefore aggregate investment levels.

In this context, what are the chances that Libra will provide a solution to this problem?

Libra and the ‘Unbanked’

Whilst specific details are still scarce, several points can be made at this early stage.

Firstly, whilst the problem of the unbanked isn’t new or only just being discovered, neither is the solution proposed by Facebook new or original. Researchers and analysts working in the field of blockchain applications have been aware of the massive potential for crypto payments systems to reach the unbanked for many years now. For instance, well-known researchers like Paul Vigna and Micheal J Casey were publishing on this theme as far back as early 2016.

Secondly, there seems no reason to believe the same problems affecting other projects of this type and with this goal won’t also be faced by Facebook. Interestingly, the experience of firms like AssetStream and non-profit organizations like Stellar, has shown that technology isn’t the core issue for such systems anymore.

In fact, a consensus seems to be emerging that the key hurdles to overcome for such projects aren’t technical or purely economic in nature, but more that trust in and knowledge of cryptocurrencies is naturally quite low in the target communities.

Even in Pacific Asia, an area much more savvy with cutting-edge tech and hosting many innovative blockchain start-ups, a recent survey by London-based consultancy Ernst and Young discovered that nearly 70% of firms don’t feel they adequately understand or could apply blockchain solutions to their own operations yet.

Thirdly, it goes without saying that unlike non-profits like Stellar, Facebook is a profit-maximizing entity that must strive towards continually increasing revenues and minimizing costs. As such, it remains to be seen whether the commitment to spreading the wealth generated by globalization to those least well-served by current financial infrastructure is a genuine goal in its own right, or simply a possible but not inevitable by-product of the extent and reach Libra is likely to have based on Facebook’s massive user base.