How Crypto Helps the Unbanked in the Developing World – An Introduction
Bank, DeFi - September 24, 2020
Having a bank account is like being part of a ‘secret club.’ It gives you the privilege of doing a number of things only with people who have a bank account.
It allows you to:
- Save and store money
- Transfer and send money
- Take credit and earn interest
- Make investments and grow wealth
These are just the basics. Bank accounts and banks give you access to a whole new world. Yet, according to the world bank, 1.7 billion adults remain unbanked. What’s even more surprising is that two-thirds of this group have access to a simple, cheap and convenient tool which can be used to manage bank accounts, a mobile phone.
Despite this, most people remain unbanked. Why?
A banking system is based on one thing and one thing only, trust. Trust in the commercial bank to hold the money and trust in the central bank to keep its value stable. While this ‘trust’ between citizens and the banking system is a given in the developed world, in the developing world, it’s not.
In most parts of the developing world, the value of money is not stable. Because of poor economic conditions, increasing debt, and resulting government policies the currencies of the developing world against currencies of the developed world falls. This is what we call inflation. Examples like Venezuela, Argentina, Zimbabwe, and Iran spring to mind.
What inflation does is it increases the cost of everything within a country. The cost of groceries, fuel, and rent go up creating higher expenses. During times like these holding a currency which is losing value does not make much sense. But, local banks restrict or prohibit citizens to hold foreign currencies which are going up in value. So, what do the citizens do? Well, there’s not much they can do and hence the trust they once had in their government, is now gone.
If there’s no trust in the government, there’s bound to be no trust in the local bank. If there’s no trust in the bank, there’s no deposits, no savings, no loans, no banking system. See, how this becomes a vicious cycle, with on end-point?
In this video, we talk about the question of ‘trust’ and how it is at the center of the developing world’s unbanked.
Enjoy the video!
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