Cash can stifle economic development. That might seem counterintuitive. Aid is critical to ameliorating the plight of poor people living on far less a day than we spend on a latte. But physical cash can undercut many development objectives the U.S. government works to achieve. From improving aid effectiveness to shining a light on corruption to unleashing the private sector, cash gets in the way. If you care about reducing poverty, then you must also care about reducing the reliance on physical cash.
We begin a movement to do just that. USAID Administrator Rajiv Shah is announcing a broad set of reforms to use USAID’s $22 billion financial footprint as a force for good—as a way to reduce the development industry’s dependence on cash. This includes integrating new language into USAID contracts and grants to encourage the use of electronic and mobile payments and launching new programs in 10 countries designed to catalyze the scale of innovative payments platforms. Based on examples in Kenya, Haiti, Mexico and Brazil, we believe that our implementing partners will generate at least 15% efficiency gains in their operations by 2016.
This movement would not have been possible 5 or 10 years ago. The infrastructure did not exist. But the rapid rise of the mobile phone—there are now nearly 4.5 billion mobile phones in the developing world—in tandem with electronic cards makes it possible today. We cannot afford to let this opportunity pass—this movement cannot be a movement of one. Indeed, USAID’s assistance is a big drop but still a drop in the development bucket. This must be a movement that crosses sectors and borders—private companies with extensive supply chains and governments with large disbursements must join together to leverage electronic payments platforms. Here’s why we must do better than cash.
First, cash costs money. It is ironic, but paying teacher salaries or issuing social transfers is expensive. You need money to hire couriers to lug big bags of cash around—and leakages are inevitable. Think of electronic or mobile payments as the functional equivalent of epoxy paste—they seal the cracks in the payment edifice and prevent leakages.