Tuesday, December 6, 2011

Liz Losh's Guest Blog: From Statecraft to Neighborhood Soap Operas

In the final panel of the day on "Currencies in Collision," the first presenters came from Birzeit University to discuss "Management and Mechanism in Palestinian Economy in Multi-Currencies Context" in a study that represented the collaborative efforts of Nidal Rashid Sabri, Diama Abu Laban, and Deema Waleed Haniya, although only Laban and Haniya could attend the conference in person.

They described the different sectors of the economy as follows: 1) the official banking system composed of 18 banks, which were mostly foreign, but included both commercial and Islamic institutions, 2) moneychangers specializing in the buying and selling of currencies, 3) about nine microfinance organizations (besides UNRWA), 4) about forty FOREX trading firms, 5) the insurance sector, which is comprised of 10 corporations, and 6) the financial market, which consists of one stock exchange. Presenters reminded the audience that Palestine was a country under occupation, in which territories were not connected and the land was dotted with very poor areas, such as refugee camps.

The central fiscal challenge, as they described it, was the fact that there was no national currency, since prohibitions on statehood make printing and circulating their own money forbidden. As a result citizens were forced to use three separate currencies in use for different purposes: the U.S. dollar, the Jordanian dinar, and the Israeli shekel. Palestinian ATMs deal with all three currencies, and people generally understand the currency conventions in use. For example, when dealing with lands, the dinar is the only accepted currency, but when buying an apartment the dollar is used, and daily transactions were conducted mostly in shekels.

Furthermore, the Palestinian team described limited availability and awareness about using innovative financial instruments. In their entire country, there are only two banks with Internet banking, and no mobile money in use at all. Finally, the fiscal landscape is shaped by high incoming remittances from Palestinians sending money home from work abroad. Thus, presenters argued that factors that shaped behavior around saving in these currencies suggested the need for fundamental revisions.

As they explained, the research group's methodology focused on examining the related laws, rules, and regulations, analyzing the related data, and conducting interviews with both bank treasurers and clients about the three currencies. What they discovered that currency choice was most determined by personal income currency (44%), trust was the second most important factor (27%), and comparison of interest rates was a relatively minor factor (17%). Bank officers provided explanations of user reluctance to use e-banking as follows: they "don’t know how to use it," "don’t know about about existing technologies," and "prefer personal interactions." They also assumed that security issues or fears of hacking were more important than their clients did. Their findings indicated a need for awareness campaigns, a need to adopt new regulations, and a need to connect treasury transactions.

The theme of alternative currencies was continued in the next paper from Magdalena Ramada-Sarasola, Henk van Arkel, and Eduardo Tarrag about C3U in Uruguay: "Determinants of the Demand for Micro-saving Programs in Uruguay: Motivation and Resistance to Join C3U." In introducing herself to an audience suspicious of economists, speaker Ramada-Sarasola did confess, "I am an economist. I must admit that," but she also showed a matrix of two-way transactions involving individuals, firms, government, and banks and financial institutions. She explained how the innovative money system C3 or Commercial Credit Circuit was developed by the Social Trade Organization (STRO) and supported by several bilateral and multilateral donor organizations piloted since 2005 in Honduras, El Salvador, Costa Rica, and Brazil had already facilitated 12,000 small loans that were approved in a circuit aimed at increasing liquidity by focusing on business-to-business transactions and setting up regional business networks.

Ramada-Sarasola's case study focused on mobile money in Uruguay with an emphasis on issues involving "trust," "scale," and "the chicken and egg track" in a region where 45% of the population was unbanked. She argued that one of the major factors favoring successful adoption of C3 in Uruguay was participation by the Uruguayan government sector to address the issue of scale, since all state-owned enterprises accept C3 and bills for water, electricity, public transport, and communication can be handled with C3, and even taxes can be paid with C3. Governments also had reasons for encouraging C3 beyond the "political agenda" of financial inclusion and promoting themselves as altruistically motivated, because being able to track transactions opened up opportunities to tax those transactions, although the government has promised that this new tax revenue will go to the local community that is generating them.

This C3U research focused on a sample of 28 neighborhoods around Montevideo, where penetration of mobile phones was an astonishingly high 116% and the illiteracy rate was relatively low. Furthermore there was great trust in retailers and a public bank serving as a warrant. They found no a priori resistance to adoption among the 45-77 year olds interviewed about their demographic profiles, understanding of context, use of mobile phones for services like text messaging, financial behavior, and acceptance of mobile money. The only notable area of resistance involved buying and selling merchandise, which researchers attributed to the lack of young people on the pilot and the high default rate associated with stores.

(The "two currencies" of Uruguay are further explained to English speakers by a blogger in a posting here.)

The final research from Chile from Jose Ossandon Valdes, Tomas Ariztia, Macarena Barros, and Filipe Gonzalez on the "conflicting currencies" panel covered "The Financial Ecologies and Circuits of Commerce of Retail Credit Cards in Santiago de Chile." Valdes described how researchers drilled down into a rich data set of recollections that captured intersecting financial narratives based on interviews, files, notebooks, and bills, which allowed the team to map circuits and reveal an entire history of retail cards, although stores were not always happy to give all information that they kept on the families of customers. The small domestic dramas included characters like 31-year-old Francisca whose husband was in jail and 66-year-old Maira with two sons working in the fruit market. We learned about how these characters spent their limited resources on discrete purchases like buying a pair of pajamas, a hoodie, a bottle of perfume and how cards circulated among people to facilitate such purchases. Figuring out accounting when so many people lent out their cards and then figured out who used it later created thousands of possible soap opera episodes in the circuit of commerce that Valdes detailed. Of course, not all the portraits were complete. As he noted Juana might have a suitcase where she saved all the receipts from credit card bills, but Maria might make her own clothes and try only to buy in cash.

This these smaller circuits of commerce, the risking of friendship ties was often a nothing type of potential liability from financial participants. For example, Paula might be irritated by neighbors paying late without paying interest after borrowing her card. The Chilean researchers summarized their preliminary findings with a few major themes, which included "rationality" in which participants must negotiate complex uses and multiple alternatives, "ecologies" as ways to understand the financial lives of those excluded from banks but not stores or might be excluded but not members of the poorest groups, "circuits" in which credits are mixed with kinship relationships and systems of care, and "social-technical networks." (Only one participant saw the cards as only "private.") However, there are rules and conflicts, which community members often understood through the similarity of forms of association, so that this system is not new for them.

Moderator Scott Mainwaring from Intel noted that each presenter on the panel ultimately used a different methodology to visualize the financial flows that they described, but they all asked "where do different currencies flow?" and "where are there barriers to this flow?" as they explored their common interest in circuits, although they might have different lenses for what a circuit is. This panel about alternatives dealt with many affordances and constraints, particularly when the preferred alternative is banned, as in the Palestinian case.

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