Boston University researchers explore whether digital currencies can solve remittance problems in conflict zones

Can digital currencies improve the financial situation of war-torn countries? Boston University’s Center on Finance, Law, and Policy convened a task force to explore this question.

According to an October 2013 report on remittances in regions plagued by conflict and instability, the report specifically focused on the Middle East and Africa and did not analyze digital currencies.

Digital currencies have been heralded by many observers, from federal central banks to major credit card networks, as a potential game-changer for world remittances, despite opposition from practitioners.

Organizations like the Bill and Melinda Gates Foundation have also begun looking at using blockchain to develop new payment methods for the unbanked.

The research group, led by Daivi Rodima-Taylor and William W Grimes of the Center for Finance, Law and Policy, an interdisciplinary research group focused on finance issues, recently formed a task force to study Bitcoin, blockchain and how Bitcoin can be used to address formal and informal remittances around the world.

The task force was chaired by Circle's John Beccia and included fellow Circle community manager Chris DeRose, Pillsbury Winthrop, Shaw Pittman attorney Marco Santori, and entrepreneur Joshua Unseth.

Rodima-Taylor believes that the financial infrastructure in conflict zones is very fragile, especially central banks, and digital currency as a technology can be used to improve the current remittance situation.

She told CoinDesk:

“Innovations in financial technology such as digital currencies are already providing an effective solution for the remittance sector and have the potential to transform the cross-border remittance market, especially in fragile and conflict settings.”

According to Grimes, the task force, formed by the Center on Finance, Law and Policy “is designed to understand the potential of mobile and digital technologies to address remittance issues in developing countries, as well as any potential legal and political implications,” and will also focus on studying other forms of electronic remittances, such as digital currencies (Bitcoin).

Digital remittances

According to the research group’s latest statement, digital currencies like Bitcoin “are creating more opportunities for more efficient ways to send remittances” while also “posing certain risks and challenges.”

“The research explores the emerging social, community and network opportunities for digital currency technology innovation, as well as the emerging technological and institutional hybrids as digital currency interacts with various forms of mobile and traditional banking.”

Rodima-Taylor told CoinDesk that based on her previous research, the growth of private remittance methods often occurs “in the context of the breakdown of formal financial institutions and poorly functioning governments.”

Like hawala, a trust-based payment system that dates back to the Middle Ages, Rodima-Taylor says informal liquidity “draws on existing social institutions and culturally embedded networks of groups.”

She added:

“In fragile environments such as Somalia, where anti-money laundering remains a systemic risk, digital currencies offer a potential safe haven. The decentralized nature of digital currencies and peer-to-peer systems do not rely on infrastructure such as central banks, making them more suitable for chaotic environments such as Somalia.”

Conflict breeds innovation

Rodima-Taylor also cited past examples, including the development of informal remittance channels in Somalia during the region’s long civil war in the 1990s, of timely leveraging new technologies to address remittance challenges in such situations.

She added:

“So, Somalia, which was then rife with conflict, developed one of the most advanced telecommunications infrastructures in Africa, demonstrating how conflict can drive the development of technology.”

Rodima-Taylor continued, Somalia's remittances have long been seen as an initial model of a mix of private informal and public formal remittances.

“The examples of Afghanistan and Somalia suggest that innovative local combinations of existing remittance institutions and new technological opportunities can leverage their adaptive potential, even in the context of widespread conflict,” she told CoinDesk. “They can also generate new opportunities for formal sector engagement and provide viable hybrid remittance options.”

Low acceptance rate raises concerns

Grimes told CoinDesk that, right now, digital currencies have not yet achieved the level of widespread acceptance that they could have in reducing the costs of remittances.

Individuals must use government-backed currencies to purchase digital currencies, adding an extra step that adds additional expense and risk.

“Currently, the main problem with digital currencies when it comes to remittances is acceptance. Any remittance must be handled in fiat currency, which brings transaction costs and currency risk,” Grimes said. “In addition, the volatility of Bitcoin prices also makes it a poor store of value.”

He said that if digital currencies can be widely adopted, the potential advantages of digital currencies will be fully realized:

“The biggest problem with digital currency remittances is the same as with other remittance methods – it’s still cost. As digital currencies become more widely used in developing countries, society will get used to using digital currencies. Digital currencies are still an important new tool to address these social needs.”

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Original article: http://www.coindesk.com/boston-university-research-bitcoin-conflict-zones/
By Stan Higgins
Translator: Wang Er
BTC address: 16enj2bapYdzPfa2DWSVaT1g95MCXg2hHt
Editor: printemps
Source (translation): Babbitt Information (http://www.8btc.com/nexuslab-blockchain)