Corona virus induced lockdown: a case for decentralized money

As Covid-19 infections surpassed three million towards the end of April 2020 after having started the month with just under a million. It seems the situation is getting worse and the promised flattening of the curve is taking longer while there has been no real breakthrough on the vaccine front just yet.

Indications are that more will succumb as governments across the world now seem overwhelmed with not only the direct effects of the virus but the economic implications as well.

As if that is not enough, it is also emerging that governments need to bolster their security preparedness as the possibility of riots and chaos grow.

Growing reports of chaos

To illustrate, in March 2020, it was reported that the governor of the US state of California had asked the country’s National Guard (army reservists) to help with food distribution and policing. Apparently, some residents of the state were not taking the call to stay home seriously. In the UK, video footage of what appears to be criminal gangs looting of stores made headlines.

In South Africa, the social media was awash with images and footage of soldiers beating people that defied the order to stay at home.

Clearly the picture is a gloomy one and as prospects of finding a vaccine quickly still appear dim, the future is even bleaker it seems.

However, it should not be all doom and gloom. There is still a chance that something positive will emerge from this.

The famous Greek Philosopher, Plato once remarked that necessity is the mother of all (human) creation. This difficult situation should drive us to find ingenious ways of dealing with not only the effects of the virus itself but its ramifications as well. This is particularly true for communities or those that expect others to find a solution for them.

The situation facing many donor countries means they will prioritize their immediate needs before thinking of others that are less fortunate. This means developing countries that are in constant need of aid will have to think fast and find solutions to their respective problems.

It is trite that countries have responded the way they have done (lock downs) as it is one effective way of stopping a further spread of the disease. However, for many living in poor countries, it has not been easy dealing with such lockdowns.

Many survive from hand to mouth and the lockdowns are proving to be a real challenge. Citizens of these countries hardly have any funds set aside for emergencies like the one sparked by Covid-19. This scenario is quite profound in Africa and with growing signs that the lockdowns will be extended, there is a possibility that some will succumb to hunger.

Time to remove draconian regulations

The situation is compounded by the fact that the respective governments are broke, they cannot even help themselves.  Consequently, they are unable to extend aid packages to their citizens just like what the European and American governments have done. So if anything, the lockdowns are having an undesired effect on population groups.

Given the direness of the situation, there is need for policymakers to think of different ways they can make life easier for people. One way of doing this is suspending regulations that make it difficult for people to help themselves.

A good example is suspending some of the stringent controls or regulations on the movement of foreign exchange. Foreign exchange is a tightly controlled resource in countries that do not generate enough of this from exports receipts. Because there is not enough, governments often put up regulations that seek to manage the allocation of this resource.

Such controls are by design, meant to restrict or curtail access especially by the ordinary person. The elite or those with good connections are hardly affected.

The rest of the population will only get a chance to acquire this without restrictions via Diaspora remittances, another major source of foreign exchange inflows for developing countries.

Remittances are often sent via formal channels like banks and money transfer agencies and through informal channels. Informal channels—which are believed to account for a large portion of all remittances— range from trusted couriers like cross border bus or truck drivers to relatives and friends that regularly travel.

There is no doubt that steps governments are taking to contain the virus will put a further strain on flow of foreign exchange into their countries. The closure of ports of entry and the suspension of passenger flights in many African countries mean informal remittance channels will be affected too.

This exact scenario is playing out in Zimbabwe where the desperate situation forced the government to rescind some of its earlier directives which resulted in the closure of registered money transfer agencies.  The country’s president had to issue a new decree that exempted the likes of Western Union and World Remit from the lockdown regulations.

Separately, the country’s central bank had argued that reopening money transfer agencies was necessary because it is one of the few channel still bringing in foreign currency.

Unfortunately, this only adds to the ongoing confusion where security forces have banned movement of people while the government is loosening some of the most stringent regulations.

Cryptocurrencies to the rescue

The situation aptly sums up why cryptocurrencies like Bitcoin or Ripple’s XRP can become important alternatives in as far as cross border money transfers are concerned. Using such currencies, ordinary people can move foreign exchange in and out of a country without any hindrance. Governments cannot directly impose limits on the amounts that can be moved in and out of a country with sum currencies.

It is such attributes that make it possible for a migrant worker in Italy to send funds in the form of Bitcoin or XRP to family and friends in Burkina Faso. The government or central bank cannot do anything to stop this.

While this has been on-going and livid governments have responded by imposing a blockade on the movement of crypto denominated funds to fiat currency platforms run by banks and vice versa.

It was an ill advised decision then and still is today. Since most formal and informal channels for sending remittances are currently closed due to restrictions imposed, it is becoming clear that these privately created/issued cryptocurrencies have a place in today’s society.

 Already organizations like the UNICEF have recognized or are now accepting donations in form of cryptocurrencies. It is imperative that governments in developing countries follow suit.

In fact, the situation now demands a rethink on the ban or restrictions on the use of cryptocurrencies.

Had this crypto ecosystem been allowed to grow, then it would have been easy for people to observe safety precautions like social distancing or staying at home.

There is still time for governments to reverse their stance on cryptocurrencies and make it possible for those who can to remit or donate using these to do so. It will be sometime before the world overcomes COVID-19 yet the obligation to assist those in need remains.

The blockchain technology provides the perfect infrastructure that enables donors to continue giving irrespective of lockdowns. Even better, this technology enhances transparency as donations made will be known to everyone. Similarly, when cash outs of donated money are made this will be on record.

Lifting the ban on cryptocurrencies or recognizing them as legal tender will potentially open new channels for those that want to send money or help others during this time.