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Cash Transfers in Emergencies: Evaluating Benefits and Assessing Risks

2001 — By David Peppiatt, John Mitchell, Penny Holzmann

In terms of both theory and practice, there appears to be a strong case for cash-based responses to food emergencies where the supply and market conditions are appropriate. Amartya Sen’s work on entitlements offers a solid theoretical base for cash transfers, and the practical experience so far, limited though it is, provides evidence that direct cash distribution, in the right circumstances and with careful planning and monitoring, can be more timely, less costly and more empowering to local communities than traditional food distribution. Nevertheless, there appears to be a reluctance within the humanitarian relief system to include cashbased responses in emergency response portfolios.

This paper reviews the theoretical underpinnings of a cash-based approach to food emergencies, and presents case-studies of cash distribution. These examples, which are drawn from Africa, South Asia and the Balkans, highlight both the risks and the benefits of cash-based responses as against traditional food aid. On the one hand, cash is more cost-effective because its transaction costs are lower; it is more easily convertible, allows for greater beneficiary choice and can stimulate local markets. On the other hand, cash can be used in ways not intended by the donor, can contribute to local inflation and poses security risks not normally associated with food aid. The paper concludes by setting out the conditions under which cash aid might be an appropriate response, and highlights how its associated risks can be minimised. There can be no ‘blueprint’ for the use of cash across all emergencies and in all circumstances; instead, agencies need to weigh the benefits against the risks on a case-by-case basis.