In the same week that Bitcoin’s value plummeted and the rest of the crypto market appeared to collapse, FTX US opened its new headquarters in Chicago. The timing was not auspicious for the cryptocurrency exchange. Nevertheless, in partnership with Mayor Lori Lightfoot and the nonprofit Equity & Transformation, FTX US also announced the launch of a one-year pilot program to give 100 Chicagoans $500 per month, financial literacy training, “a zero-fee bank account with access to investment products” and FTX’s zero-fee debit card.
As the Chicago Sun-Times reported, Lightfoot praised the efforts, saying, “This is a mechanism and a tool to bring traditionally underrepresented and ignored populations into the world of crypto so they can take ownership and control of their own financial destiny.” Meanwhile, Deputy Mayor Samir Mayekar touted the company’s commitment to “financial inclusion.”
In theory, this pilot sounds promising. What could be better than free cash, products and services in a cash-strapped city? However, a closer examination 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 protections. For instance, cryptocurrencies do not presently address the needs of the unbanked, underbanked or low-income Chicagoans who lack access to simple, quick and affordable financial services. Processing cryptocurrency transactions can be slow and the crypto networks often come with transaction fees that are even higher than those at traditional financial institutions. Cryptocurrencies are also notoriously volatile, making them unsuitable as a means for daily transactions and payments. And crypto products and platforms are rife with scams, fraud and hacks.
Furthermore, the products and services offered in the pilot prompt important questions. For example, will participants receive the monthly $500 in cash or must they accept cryptocurrencies? Will they be required to use a crypto wallet or other investment product from the company? Can participants simply take the cash and not use the products? If FTX products are required, which should raise alarm bells, what remedies do participants have if these products are hacked? Finally, how will the city guarantee this is not just a gimmick to draw low-income Chicagoans into a risky market?
FTX US President Brett Harrison tweeted that “FTX and the FTX Foundation aim to make long-term investments in the communities we’re 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 right to recognize the communities that have historically been denied access to traditional financial services—an especially acute problem in Chicago. Yet, while “equitable access” is a noble goal, are volatile, risky cryptocurrencies the solution? We must ask whether this access comes at a cost and, critically, whether this “inclusion” can become predatory for the most vulnerable.
Indeed, the concept of “predatory inclusion” has been studied extensively by scholars such as Keeanga-Yamahtta Taylor, Louise Seamster, Raphaël Charron-Chénier and Tressie McMillan Cottom. The concept refers to marginalized groups gaining access to goods, services or opportunities that they previously were excluded from—yet the conditions accompanying this access undermine or eliminate the long-term benefits, while others profit from this inclusion. An example of predatory inclusion can be for-profit colleges, which are meant to expand access to higher education, but come at a higher cost and with student loans that are difficult to repay. There are also payday loans, which provide access to credit but come with high costs and risks. Similarly, crypto may offer access to alternative financial services, but with the caveats of high risks and insufficient consumer protections.
Making Chicago a hub of an emerging industry and attracting new firms makes sense, especially if this is achieved through partnerships, cross-sector collaborations and community involvement. Furthermore, the goal of making the FTX US pilot a complement to the city’s two other guaranteed basic-income initiatives may have been well intentioned. These initiatives were fought for and won by activists and advocates, and city officials should be proud they are leading an innovative anti-poverty program. Still, there was no need to muddy these initiatives up with risky products and services.
At this stage of the technology’s development, promoting crypto as a form of financial inclusion is irresponsible. It might be wiser for city officials to wait and see whether crypto technology progresses or collapses first. In the meantime, Chicagoans would be better served by public officials who work to resolve the root causes of discriminatory financial services in the first place.
Tonantzin Carmona is a David M. Rubenstein Fellow at Brookings Metro.
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