EmFi: a project to create sustainable and inclusive financial circuits

Politecnico di Milano, through its QFinLab, coordinates the EmFi project – A special-purpose virtual currency for the Covid-19 socio-economic emergency in Italy. Partners of the project are Cefriel and Stirling University (Computing Science and Mathematics). Professors Emilio Barucci and Daniele Marazzina of the Department of Mathematics are the project managers for our university.

The project is funded by Algorand Foundation and is run in partnership with Comune di Milano (City Council of Milan), which is interested in validating the platform for supplying vouchers for textbooks to pupils at primary schools (cedole librarie).

The goal of the project is to study digital currencies supported by new generation Digital Ledger Technology (DLT). It is one of the first use cases in Europe of this kind of system for the distribution of aids to final users.

The intervention aims to experiment with special-purpose digital money and sustainable and inclusive financial circuits. Special-purpose digital money is about the management of financial resources for selected beneficiaries subject to pre-defined goals, particularly for the use of resources, like the support for primary school pupils. Sustainable and inclusive financial circuits aim to reach beneficiaries who could otherwise be out with the existing financial system (for instance the unbanked). Such individuals could easily become part of the EmFi innovative financial system, simply by means of a mobile app. Special-purpose money and financial circuits enable advanced interventions, whose desirable properties can be programmed and are supported by the technology.

This project is based on Algorand technology, a breakthrough Distributed Ledger Technology developed by the MIT professor and Turing Award Silvio Micali. Algorand represents a further innovation from models like Bitcoin and Ethereum. Noticeably, Algorand is also sustainable, secure and an extremely efficient technology.

Differently from many current systems for the distribution of resources, such as those based on vouchers or prepaid cards, EmFi relies on digital tokens for the creation of sustainable circuits. One of the main advantages of such an approach is disintermediation.

The COVID-19 emergency has clearly shown how public authorities need to efficiently reach also those potential targets of support interventions who are not included in traditional financial circuits. Applications based on DLTs are currently being studied by institutions like the ECB, many central banks, and regulators. They are of strong interest, since they offer a paradigm shift compared to traditional financial circuits, allowing you to reach individuals efficiently, safely and at limited cost.

The design of such innovative circuits, poses foundational questions, which will be addressed by the project: privacy, fraud prevention, clear identification of target beneficiaries (digital identity), provenance for the usage of resources linking sources to targets, and financial inclusion (particularly for unbanked or difficult to reach target beneficiaries).