How Cryptocurrency Can Accelerate Humanitarian Aid Delivery
In the United States, cryptocurrency is an increasingly popular investment. Globally, cryptocurrency is also becoming a popular alternative payment mechanism. It is especially attractive because the blockchain technology cryptocurrency runs on enables faster, more affordable, and easier cross-border transactions than any other payment system on the market.
Last year, we wrote about how cryptocurrency increases financial inclusion and how migrant workers in the United States are benefiting from the technology by sending remittances home at a much more affordable rate. It is clear that cryptocurrency unlocks massive opportunity for global payments, and we’re seeing increasing ways in which cryptocurrency can accelerate the international humanitarian aid sector by allowing money to reach those in need, when they need it the most.
What is humanitarian aid and why is it needed?
Global humanitarian need is greater now more than ever. Consider a young family in the Philippines making ends meet by selling used clothing in a market stall. Once Covid-19 hit, their customers stopped coming, suddenly leaving them without an income. Or imagine a Mozambican farmer who relies on a successful harvest to provide for his family. A hurricane hits and his entire crop is destroyed – with it, his annual income and the family’s food supply.
According to the World Economic Forum’s Digital Currency Governance Consortium, “the primary objective of humanitarian assistance is to save lives, alleviate suffering, and maintain human dignity during and after man-made crises and disasters associated with natural hazards.” The 2021 Global Humanitarian Assistance Report reveals higher rates of crises and humanitarian need than ever in 2020, largely due to the impacts of the Covid-19 pandemic.
Some illustrative statistics from this report include:
The number of countries experiencing protracted crisis has doubled to 34 in the last six years.
In 2020, an estimated 243.8 million people living in 75 countries were assessed to be in need of humanitarian assistance.
Between 2010 and 2020, extreme poverty in fragile states grew 8% while falling 63% in non-fragile states. Fragile countries now account for two thirds of the world’s people experiencing extreme poverty.
As the need for humanitarian aid grows, an increasingly common tool used to meet this need at scale is cash transfers.
What is a cash transfer?
Cash transfers are exactly what they sound like – direct cash delivered from aid organizations to those in need. Cash transfers have been documented as a highly effective form of aid delivery, and are a powerful way to allow those in need to choose how to spend the money they so badly need. Cash transfers are most commonly delivered through traditional financial institutions. These transactions often require multiple bank transfers, including at least one cross-border transfer. This process is expensive, time-consuming, and requires significant human capital to manage, in large part because many banks offer worse exchange rates than the base currency exchange rate. For example, US banks are typically 2-4% higher. This rate, combined with wire transfer fees, totals about 5-7% more for a transfer. Additionally, an international wire transfer will arrive at the destination bank between 2 and 4 business days after it’s sent.
Due to the nature of humanitarian emergencies, every second and cent diverted away from the end recipient could mean a critical loss. Because cryptocurrencies offer faster and more affordable cross-border transactions, sometimes occurring within minutes, they can minimize these challenges by ensuring maximum funds reach those in need, when they need it the most.
Cryptocurrency-based aid in action
There is a growing number of humanitarian aid organizations using cryptocurrency for good. These programs demonstrate cryptocurrency’s effectiveness in addressing global crises.
In 2020, Oxfam led a groundbreaking pilot in Vanuatu demonstrating that cryptocurrency can increase the speed and decrease the cost of cash transfer delivery. Oxfam targeted remote communities where a recent cyclone and the Covid-19 pandemic had destroyed livelihoods, increasing the vulnerability of poor households. Oxfam distributed over USD $2 million to over 35,000 beneficiaries in the form of a “tap and pay” card preloaded with an Ethereum-based stablecoin. Beneficiaries then used this card at local vendors to purchase household essentials. Vendors received payments in a digital wallet, which could be easily cashed out into the local currency. As compared with previous cash transfer programs, Oxfam reports cost savings of distributing aid by up to 75%, and a reduction of delivery times by over 90%.
The World Food Program (WFP) also runs its “Building Blocks” program, which specifically delivers cash transfers to refugees. Their Ethereum-based system ensures smooth delivery of food assistance in refugee settlements. For refugees fleeing conflict zones, this system is particularly beneficial because cryptocurrency-based payments can be done anonymously, protecting the identity of refugees who cannot risk sharing personal information.
Other opportunities for humanitarian aid
Cash transfers are just one of innumerable ways in which cryptocurrency can accelerate humanitarian aid delivery. Using cryptocurrency can increase the transparency and cost-effectiveness of humanitarian programs. It can improve coordination among aid organizations and minimize duplication of efforts. It introduces a greater draw for fundraising, specifically crowdfunding, that enables individual donors to trace exactly how their donation is spent. The opportunities for cryptocurrency and humanitarian aid are only beginning to be uncovered, and one thing is clear – the potential is huge.
Cryptocurrency-based humanitarian aid can play a critical role in increasing the speed and decreasing the cost of cash transfers. It can protect identities and increase coordination among aid organizations working in low-resource, urgent environments. Maximizing this opportunity requires addressing challenges, including the potential for cryptocurrency to increase inequalities among those with access to the internet and those without. Further, the ethical risk around testing new technologies on vulnerable populations is highly complex with no clear solution yet. Cryptocurrency has a major role to play in responding to humanitarian need, and its massive potential adds much-needed pressure on the humanitarian aid sector to resolve these challenges so its benefits can be realized.
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