A Conversation with the World Bank’s Erik Feyen on Open Money
Three ways Open Money can empower individuals
Celo + The World Bank
Since the early days of Celo, we have had a relationship with the World Bank. Celo co-founder Rene Reinsberg worked with The World Bank’s Venezuela local office in 2009, and Anca Bogdana Rusu, a Celo core team member, spent most of her career at The World Bank and International Finance Corporate (IFC). Building relationships with key international organizations who are thought leaders has been core to aligning to our mission of creating prosperity for all.
At the Future of Finance Summit 2019 hosted by Google, Rene had a conversation on stage with the World Bank’s Erik Feyen about open money, blockchain use cases, the role of policy makers play as well as how The World Bank and Celo fit into the ecosystem. (Full video link at the bottom of this post.)
What is Open Money and why does it matter?
Open money allows communities to create their own money and build systems that support shared prosperity. At Celo, we define prosperity as basic needs being met, individuals growing along their own unique paths, and people helping each other.
Three Ways Open Money Can Empower Individuals
Ability to innovate and adapt
To date, many of the institutional experiments and pilots have been deployed on permissioned systems, which are closed ecosystems usually controlled by one entity. Erik sees “most of the innovation upside” with permissionless systems, such as Bitcoin, Ethereum, and Celo. With a permissionless system, such as Celo’s platform, communities from across the globe can spin up community currencies that better reflect their own needs, values and unique circumstances and decide to spin them down or adapt when needs change. While university students in Argentina, Congolese refugees in Tanzania or migrant workers in Colombia all have financial needs that are not being addressed by the current system, what we have learned conducting research in different regions and with different demographics globally is that needs are vastly different and change with adjustment in circumstances.
However a new open system is challenging for governments and regulators to know how to regulate. Erik’s advice here for regulators was to “create an enabling environment” by building institutional capacity — get the digital infrastructure in place (broadband, registries, mobile networks, telcos) and also the financial infrastructure (e.g. credit registries). The World Bank is helping regulators set up regulatory sandboxes to adopt Fintech applications in a responsible way that has sufficient safeguards in place. This allows entrepreneurs and startups to learn from the technology.
Ability to participate
“A fundamental problem in the developing world is most people are not documented and if you’re not documented then you’re not going to be a part of the formal economy. So as a consequence, many people still reside in the informal economy with all the associated inefficiencies.” — Erik Feyer, World Bank Group
One of the features of Celo’s platform is a lightweight identity and reputation layer that not only dramatically improves the ease of use but also enables interesting things like a micro-credit history, which is something that’s lacking in most parts of the world. As Erik pointed out: “A big problem right now in most parts of the world is [that] we don’t have very solid credit score system and you know when you introduce digital identity and decentralized identity systems you’re suddenly thinking about new ways to potentially construct something like a credit history credit score and that can really unleash all kinds of new access to capital and applications.”
And the way to enable the technology to move the needle without impacting the financial stability of the country is, according to Erik, to “monitor the regulatory perimeter” — put a policy framework in place that’s flexible, nimble, tech-neutral and proportional to the underlying risk. For example, research has shown the financial inclusion benefits of a “tiered Know-Your-Customer (KYC)” approach for mobile money where the amount of KYC required, starting with little to no information, is proportional to the transaction amounts and type of product or service (source: GSMA).
Ability to collaborate
“Universal financial access [is the World Bank’s] goal, which basically means that we want to get all people or as many people as possible to have a transaction account,” said Erik. He further added that this would not just be a way for people to get a simple balance but really a “gateway into a broader set of financial services and as a result being part of the formal economy.”
To put this in context, globally, about one in every three adults do not have an account. As a simple consequence of this, they don’t have a straightforward means of receiving or storing value across distance, and therefore are excluded from a large part of the global economy. In this situation, it is hard to meet basic needs, pursue your own path, and have the means to support your community.
To address this issue, it became clear early on that a volatile crypto asset would not be very useful as a means of payment, despite its other benefits, and so Celo developed a platform for the creation of stable value assets, pegged to fiat currencies such as Dollars or Pesos, implemented by an algorithmic reserve-backed stabilization mechanism.
At Celo, we believe that to create a truly inclusive financial system we must design for all and begin by serving those who need it most. Further, we believe that if we are able to do so, the resulting (Open Money) system will be more useful, more resilient, more full-featured, and more accessible for everybody.
Blockchain technology, which Celo is built on, is a tool that allows for participation and shared ownership of this new, open financial system that includes everyone.
Here’s the full video of the panel:
What will Open Money’s place in history be? Let’s define that together. If are working with a regulator and/or want to learn more about Celo’s open platform, please visit celo.org or reach out to firstname.lastname@example.org.