Legislation governing crypto assets has been a hot topic of late, and federal regulators have stepped up their efforts to combat illicit activity and protect investors. In recent hearings, lawmakers and industry leaders have presented talking points to justify the need for stronger regulation.
These talking points have a distinctly negative subtext, implying that more regulation will decrease financial inclusion. If you are unfamiliar with Bitcoin, you should know that using it may help you make money.
Predatory inclusion
Cryptocurrencies can increase financial inclusion, but they also carry risks and limitations. Sociologists have studied the concept of predatory inclusion, which refers to practices that provide marginalized communities with access to previously excluded opportunities but with conditions that undermine the benefits and reproduce insecurity.
Some examples of predatory inclusion include payday loans and subprime mortgages. While these services can give individuals access to credit and homeownership, they also come with significant risks.
Predatory inclusion is a concern when new financial services are offered to people who would otherwise not be able to afford them. As a result, financial institutions must provide safe, affordable, and reliable services to all Americans. To ensure that digital assets benefit underserved consumers and prevent predatory financial practices, the Federal Reserve has plans to roll out FedNow, a nationwide instant payments system, in 2023. Despite this plan, there is still much work to be done.
Illicit activity
As interest in cryptocurrency assets and financial inclusion has increased, lawmakers and federal regulators have ramped up efforts to crack down on illegal activity. These efforts have included a series of talking points used by lawmakers and industry leaders in recent hearings. One of these talking points seems to be that stricter regulation will hinder financial inclusion.
However, the risks associated with cryptocurrencies and financial inclusion are not just financial. They also pose risks to national security. These include the possibility of money laundering and other illicit activities. Additionally, cryptocurrencies are used by people to conceal the financial illegal activity. And these criminal activities can also disrupt the ecosystem of digital assets.
Money laundering
While the goal of increasing financial inclusion is laudable, there are significant risks associated with crypto assets. For one, crypto transactions aren’t consistently cheaper than conventional financial transactions, and most people don’t use crypto assets to make payments. In addition, the primary purpose of financial inclusion is to improve the economic well-being of low-income people, and encouraging them to invest in risky assets could have the opposite effect.
Another concern is the possibility of illicit activity related to crypto assets. This is still a tiny percentage of all cryptocurrency transactions. And even if there is a small amount of money laundering in crypto assets, that activity is minimal compared to the 2% of illicit activity in traditional financial systems. However, crypto exchanges and wallets generally have KYC and AML procedures, which ensure the traceability of funds and prevent nefarious activity.
Exclusionary practices
Exclusionary practices are a feature of the international financial and security infrastructure. They affect a wide range of people. They are based on age, education, economic status, geography, and personal relationships. This means that potential solutions must be flexible enough to accommodate the diverse needs of individuals and organizations.
The rise of digital currencies has led to new challenges for financial institutions. These include privacy and security. They also pose challenges concerning digital inclusion. Ultimately, the uptake of digital currencies will depend on trust, useability, and accessibility. For example, a lack of access to a mobile phone or a network may prevent the use of digital currencies. The rollout of digital connectivity and dedicated hardware wallets are two ways to overcome these challenges.
Blockchain-based alternatives to current financial messaging systems have been proposed for use by 2021. These alternatives could include fiat-backed stablecoins, e-money tokens, and central bank digital currencies. However, this technology is not ready to replace SWIFT, the standard for financial transactions.
Conclusion
Several narratives have emerged about the relationship between cryptocurrency and financial inclusion. Each one addresses a different need and group of people. However, a closer look reveals that these narratives are inconsistent and do not address the real issues.
This article explores the potential for crypto to exacerbate inequality in financial services and offers several solutions to financial inclusion without relying on crypto.
