Three national units of the Red Cross — the largest humanitarian donor after the United Nations — are backing a blockchain-based currency scheme to enhance aid delivery and boost local economies.

According to a report from the Thomas Reuters Foundation on Nov. 26, the Red Cross societies of Norway, Denmark and Kenya have launched a two-year plan to replace cash and voucher provision in aid and development efforts with blockchain-backed "local currencies."

Plans to onboard 320,000 users

As the report outlines, the Red Cross currently distributes $1 billion annually as cash and vouchers, either specifically targeted at disaster relief or intended to boost local economies.

The new blockchain scheme, which has already been tested in parts of Kenya and Ethiopia, has been found to improve trade in poor communities by allowing local users to earn credits created from work, sales or aid infusions and spend them via a mobile phone app, with an underlying blockchain ledger recording transactions.

A Danish Red Cross representative told Reuters that the system has similarities to Kenya's successful M-Pesa mobile money transfer system, but does not require users to hold national fiat currency to participate.

The system will be expanded across Kenya and in the future could be rolled out in Malawi, Myanmar, Zimbabwe, Cameroon and Papua New Guinea, with a target set to onboard 320,000 users within two years. Geneva-based humanitarian consultant Paula Gil has said she believes blockchain technology will revolutionize aid delivery and represents the sector’s future.

Grassroots Economics founder Will Ruddick pointed to the low costs needed to run the scheme, at roughly $40,000 per annum needed for servers and support across Kenya, alongside the initial $1 million in start-up funding from Norway and other contributors.

Establishing economic resilience

The project has reportedly met with some resistance from Kenyan banks, who fear that blockchain-powered community credit schemes could cut demand for their own services.

Ruddick has pointed to the transparency and data privacy benefits offered by blockchain and its potential to provide aid donors with near real-time distribution, allowing them to adjust their provision to better serve communities.

Currently, the World Bank estimates that the credit shortfall for small and medium-scale businesses in developing economies stands at $2.6 trillion, he noted.

In their secure, inclusionary capacity, blockchain-backed local currency and credit systems can, therefore, help reinforce resilient cycles and help build communities’ economies — rather than remaining limited to short-term chronic aid cycles — he stressed.

Cointelegraph has previously reported on a partnership between Dublin-based startup AID:Tech and the Irish Red Cross to implement blockchain for managing charitable donations.