According to the World Bank, approximately 2.5 billion people (roughly half of the world’s adult population) does not have a bank account due to reasons such as lack of money, high fees, long distances, and complicated paperwork.
Bill Gates believes that digital currency has huge potential to help the poor access financial services. However, in his Reddit “Ask Me Anything” thread today, Gates said that the Bill & Melinda Gates Foundation does not use bitcoin to help the poor.
Two reasons why Bitcoin won’t help the poor
His first reason was that the value of bitcoin is too volatile compared to most people’s local currencies. The large downswings in the cryptocurrency’s value make it likely a person to lose money. For example, the bitcoin price has fallen by -9.37% in the last 24 hours, and -56.82% in the last 6 months. This volatility prevents it from being used as a store of value.
The second reason Gates cited was that transactions made with bitcoin cannot be reversed. Payments that are made with bitcoin can only be returned by the person or company they were sent to. Small mistakes could end up being very costly, especially for those living in poverty. Gates also added that “anonymity doesn’t work”, because there is no personal information linked to a bitcoin address that can be used to contact its owner.
However, Gates recognized that some digital currencies could still benefit the world’s unbanked.
Gates said, “Overall financial transactions will get cheaper using the work [the Gates Foundation does] and Bitcoin related approaches.”
A better alternative to bitcoin
He said that the Gates Foundation is “far closer” to bringing mobile banking than bitcoin to developing countries.
The Gates Foundation mobile banking to be effective because it costs nearly nothing to process digital transactions. Also, a large percentage of adults in developing countries already have access to a mobile phone.
M-Pesa, an SMS money transfer service launched in Kenya in 2007, has been so successful that there are more accounts than the number of adults in the country. Bangladeshi mobile money provider bKash currently processes over 60 million transactions worth a total of over $1 billion monthly.
The Gates Foundation predicts that in 15 years, 2 billion people will have access to a bank account for the first time using their phones.
How do you think digital currencies can benefit those living in poverty? Share your thoughts in the comment section below.