BLOG POST

Can Frozen Russian Assets Fund Universal Basic Income in Ukraine?

March 04, 2022

As the war in Ukraine shakes the moral conscience of the world, the question is what the global community can do to help those suffering within the country and outside. One proposal, laid out in POLITICO on Tuesday, is to use the $650 billion worth of Russia’s Central Bank assets that have been frozen by sanctions to fund digital transfers of money directly to Ukrainians. While this could be technically possible, a lot of logistical and regulatory groundwork would be needed to make it happen. But given the enormous advances in digitally delivered government-to-people (G2P) transfers for COVID-19 social assistance over the last two years, the challenges are not insurmountable. If done well, it could also be a template for similar situations in other countries—notably Afghanistan, where the US is holding billions in frozen central bank assets while the country confronts a humanitarian crisis.

Ukraine starts off with some advantages. As of the time of publication, it has a recognized government which can legally receive international transfers through official channels. And as the POLITICO article notes, Ukraine has an established quasi-cash transfer for  home heating and electricity, the Housing and Utilities Subsidy (HUS) that covers almost 7 million households, nearly half of the total population. The transfer is provided as a discount on utility bills and costs around 2.5 percent of GDP. Before the conflict began, the Ukrainian government had also tried to move to a full cash transfer in a designated financial account with the ultimate goal of creating a Guaranteed Minimum Income, similar to the UBI proposal.

So the database of beneficiaries already exists, which is a necessary first step to enable the transfer of money to people. This could be done through mobile money accounts, but it is also possible to use e-vouchers, which would enable people to buy groceries, medicines, train tickets or micro-insurance, but also cash out part of it if they need to. This is not  technically difficult—Namibia used e-vouchers for its COVID-19 Emergency Grant, for example. Given that the beneficiaries in Ukraine’s case are likely to be digitally literate, they will be in a position to make use of the money—but a plan like this hasn’t been rolled out in an active conflict zone before.

But a separate, important question is whether pumping more cash into a war economy will generate inflation, simply driving up the prices of necessities without actually helping Ukrainians—which hinges on whether there is enough supply of essential commodities and imports. If not, those who for one reason or another do not get the money will be the ones hurt by higher prices.

Transferring cash to refugees in other countries has more challenges, notably Know Your Customer (KYC) and data protection regulations. Opening a mobile wallet in a different country than where the SIM card has been registered—which would be the case for most Ukrainian refugees—runs into anti-money laundering/combating the financing of terrorism (AML/CFT) controls. And registering a new SIM card in the country of current residence to open a mobile money account would require identification and other verification protocols that can be onerous for displaced people, as we have seen in other parts of the world.

There are examples of relaxing KYC norms if refugees are registered with humanitarian organizations, as in the case of the Democratic Republic of Congo (DRC). There, refugee ID cards are sufficient to legally prove identity to register a SIM card, open a bank account, and activate a mobile money wallet. But even with those accommodations, the data protection issue will be tricky. If this information needs to be verified against the existing database used for Ukraine’s HUS subsidy, then a refugee’s personal identifiers are held in Ukraine but the processing will be in Poland, for instance. This might not be permitted under the General Data Protection Regulation (GDPR)—and while Ukraine is not part of the European Union, Poland is.

None of these challenges are insurmountable, but together they form a substantial set of logistical and regulatory issues that would need to be overcome. None of that is an argument against proposals to provide support to Ukrainians through cash transfers, but a clear-eyed assessment of the difficulties is important to any plan. In any case, it is worth exploring new ways of delivering humanitarian assistance using mobile money even if it is more limited in ambition than a universal basic income, especially since the situation on the ground changes with every passing day.

The world has responded to help Ukraine in its time of crisis. It needs to work together to make sure it protects lives and livelihoods for those most affected. Providing the people with means to support themselves through the trauma of war is a good idea to take forward.

Disclaimer

CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.