Beware of Claims of Financial Inclusion Amid Cryptocurrency

In theory, this pilot looks promising. What’s better than free cash, goods and services in a cash-strapped town? However, closer examination raises serious concerns about the risks posed to low-income Chicagoans.

The mayor and her team should not promote cryptocurrencies for their “financial inclusion” benefits, when such claims lack evidence and the crypto space remains unregulated and without consumer protections. For example, cryptocurrencies do not currently meet the needs of unbanked, underbanked, or low-income Chicagoans who lack access to simple, fast, and affordable financial services. Cryptocurrency transaction processing can be slow, and crypto networks often come with even higher transaction fees than traditional financial institutions. Cryptocurrencies are also notoriously volatile, making them unsuitable for day-to-day transactions and payments. And crypto products and platforms are full of scams, frauds and hacks.

In addition, the products and services offered in the pilot raise important questions. For example, will participants receive the monthly $500 in cash or will they have to accept cryptocurrencies? Will they be required to use a crypto wallet or another company investment product? Can participants just take the money and not use the products? If FTX products are needed, which should raise alarm bells, what recourse do participants have if these products are hacked? Finally, how will the city ensure this isn’t just a gimmick to lure low-income Chicagoans into a risky market?

FTX US President Brett Harrison tweeted that “FTX and the FTX Foundation aim to make long-term investments in the communities of which we are a part and to use cryptography and our fintech stack to provide new means of equitable access to financial services to historically underserved populations . Harrison is right to recognize communities that have historically been denied access to mainstream financial services — a particularly acute problem in Chicago. Yet, while “equitable access” is a lofty goal, are volatile and risky cryptocurrencies the solution? We must ask ourselves if this access has a cost and, above all, if this “inclusion” can become predatory for the most vulnerable.

Indeed, the concept of “predatory inclusion” has been widely studied by scholars such as Keeanga-Yamahtta Taylor, Louise Seamster, Raphaël Charron-Chénier and Tressie McMillan Cottom. The concept refers to marginalized groups accessing goods, services or opportunities from which they were previously excluded, but the conditions that accompany this access undermine or eliminate the long-term benefits, while others benefit from this inclusion. An example of predatory inclusion may be for-profit colleges, which are supposed to expand access to higher education but come with higher cost and difficult-to-repay student loans. There are also payday loans, which provide access to credit but carry high costs and risks. Similarly, crypto can offer access to alternative financial services, but with the caveats of high risk and insufficient consumer protections.

Making Chicago a hub of an emerging industry and attracting new business makes sense, especially if it’s done through partnerships, cross-industry collaborations, and community involvement. Additionally, the goal of making the FTX US pilot project a complement to the city’s two other Guaranteed Basic Income initiatives may have been well-intentioned. These initiatives have been championed and won by activists and advocates, and city officials should be proud to lead an innovative anti-poverty agenda. Yet there was no need to confuse these initiatives with risky products and services.

At this stage of technology development, promoting crypto as a form of financial inclusion is irresponsible. It might be wiser for city officials to wait and see if crypto technology rises or falls first. In the meantime, the people of Chicago would be best served by officials who work to address the root causes of discriminatory financial services in the first place.

Tonantzin Carmona is a David M. Rubenstein Fellow at Brookings Metro.

About Monty S. Maynard

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