- Finance Investing
- Digital Currency
- Digital Transformation
Public Banking in the Smart City
One Sunday each month, Anne Wickham walks to the dingy store on the corner of her block. If the 77-year-old has enough money left in her tight budget for a cellophane-wrapped muffin, she will buy one. Otherwise, she goes to the counter with that month’s Social Security check and, after paying 5% for the service, takes the rest of her cash home to a well-hidden cigar box. When she was young, her father impressed on her that a box was more trustworthy than a banker ever would be.
Creating a Local Currency
Anne Wickham isn’t real, but the experience of being what economists call unbanked is quite real for many city residents. Whether out of mistrust for institutions, an inability to meet bank balance minimums, fear of legal consequences due to immigration status, or a number of other reasons, the proportion of people who are unbanked surpasses 20% in some US cities. Being unbanked means reliance on alternative financial systems, such as check cashing and payday loan organizations, that can charge large fees for relatively simple transactions.
The consequences for unbanked people are such a concern for New York State lawmakers that they are forwarding a proposal to create a fee-free public banking system called the inclusive value ledger (IVL). The IVL would establish a state-controlled master account and assign every New York citizen and business a digital wallet. This wallet can be filled with a public currency, tied to the value of the US dollar, enabling even those outside of the traditional banking systems to facilitate digital payments. Critically, use of the system would be fee free—digital payments as a public good.
Unbanked in a Smart City
As the ways in which residents interact with cities becomes increasingly digital, the inability to digitally make payments threatens to widen the gap between the unbanked and governmental functions. Paying utility bills, buying permits, settling fines, and handling taxes all become more difficult for the unbanked in a digital world. New York’s IVL proposal would streamline these functions.
The IVL also holds smart city promise beyond facilitating payment for government functions. It could simplify transit by allowing a unified payment system across all New York State’s public transit systems. Tolls and other public transportation surcharges could be routed through the IVL. The digital wallet could also be used as an account to access public libraries, recreation centers, and other facilities.
Narrowing the Digitization Gap
Digitization is a key strategy for smart city development. It allows for streamlining and centralization; the cross-sectional integration of city operations. But, as effective as it is for improving municipal functions, it also threatens to leave behind those who cannot efficiently interface with a digitized world. New York’s IVL proposal would set a foundation not only for broad inclusion in the digital economy but also in the broader digital landscape of smart cities for those facing difficulty with the transition.