In theory, this pilot sounds promising. What could be better than free cash, products and services in a cash-strapped city? However, a closer look 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 these claims lack evidence and the crypto space remains unregulated and without consumer protection. For example, cryptocurrencies do not currently address the needs of unbanked, unbanked, 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 transaction fees that are even higher than traditional financial institutions. Cryptocurrencies are also notoriously volatile, making them unsuitable as a medium for everyday transactions and payments. And crypto products and platforms are abundant with scams, fraud and hacks.
In addition, the products and services offered in the pilot program raise important questions. For example, will participants receive the $500 per month in cash, or will they need to accept cryptocurrency? Will they be required to use a crypto wallet or other company investment product? Can participants just take the cash and not use the products? If FTX products are required, which should set off alarm bells, what remedies do participants have if these products are pirated? Finally, how will the city ensure this isn’t just a gimmick to lure low-income Chicagoans into a risky market?
Brett Harrison, President of FTX USA tweeted that “FTX and the FTX Foundation aim to make long-term investments in the communities we are a part of, and to use crypto and our financial technology stack to provide new means of equitable access to financial services to historically underserved populations.” Harrison is correct in acknowledging communities that have historically been denied access to traditional financial services, an especially serious problem. In Chicago. However, while “equal access” is a lofty goal, are volatile and risky cryptocurrencies the solution? We must ask ourselves if this access comes at a cost and, more importantly, if this “inclusion” can become predatory for the most vulnerable.
In fact, the concept of “predatory inclusion” has been studied extensively by scholars such as Keeanga-Yamahtta Taylor, louis seamster, Raphaël Charron-Chénier and Tressie McMillan Cotton. The concept refers to marginalized groups who gain access to goods, services or opportunities from which they were previously excluded; however, the conditions that accompany this access undermine or eliminate the long-term benefits, while others benefit from this inclusion. An example of predatory inclusion can be for-profit colleges, which are intended to expand access to higher education, but have a higher cost and student loans that are difficult to repay. there’s also payday loans, which provide access to credit but carry high costs and risks. Similarly, cryptocurrencies can offer access to alternative financial services, but with warnings of high risks and insufficient consumer protections.
Making Chicago a hub for an emerging industry and attracting new businesses makes sense, especially if this is achieved through partnerships, cross-sector collaborations, and community engagement. Furthermore, the goal of making the FTX US pilot a complement to the city’s other two guaranteed basic income initiatives may have been well-intentioned. These initiatives were championed and won by activists and advocates, and city officials should be proud to be leading an innovative anti-poverty program. Still, there was no need to cloud these initiatives with risky products and services.
At this stage of technology development, promoting cryptocurrencies as a form of financial inclusion is irresponsible. City officials would be wiser to wait and see first if crypto technology progresses or crashes. Meanwhile, Chicagoans would be better served by public officials working to address the root causes of discriminatory financial services in the first place.