Programmable Finance for Accountable Development: Rethinking the U.S. Sovereign Wealth Fund Strategy in the Global South

The United States is considering the creation of a sovereign wealth fund (SWF) — not merely as a financial instrument, but as a platform to project “U.S. economic and strategic leadership internationally.” In an era shaped by China’s expanding presence across the Global South, the question is no longer whether America should compete — but how.

For decades, U.S. foreign aid has faltered not for lack of resources or ambition, but because of the systems through which it was delivered. American capital often disappeared into fragile states plagued by weak institutions, opaque financial flows, and clientelist politics. Monitoring costs soared. Compliance eroded. Conditionality-based lending — the hallmark of the IMF era — imposed reforms without guaranteeing results.

The problem wasn’t intent. It was infrastructure.

Today, programmable finance — smart contracts that release funds only when verifiable conditions are met — offers a new solution to an old problem. This is not merely about managing money better. It is about building a governance platform that operationalizes transparency, accountability, and performance-based funding — without the heavy-handed conditionalities of the past.

Why Programmable Finance Changes the Game

Accountable development in fragile states requires more than political will. It requires enforceable agreements in environments where trust is scarce and institutions are weak.

Programmable finance reverses the logic of traditional foreign aid. Instead of relying on costly external monitoring or ex ante policy conditions, smart contracts embed governance standards — delivery milestones, environmental compliance, procurement rules — directly into the payment system. Funds move only when outcomes are verified.

The result: lower transaction costs, reduced corruption risks, and greater local ownership of results.

For a U.S. SWF, this means enabling competitive, transparent development ecosystems — not controlling projects through donor conditionality, but setting rules that foster local credibility and market-based accountability. It is a model that leverages U.S. strengths: financial innovation, open systems architecture, and institutional design.

Moving Beyond the Limits of Past U.S. Foreign Aid

Past U.S. foreign aid models failed not only because of conditionality-based control mechanisms, but due to deeper structural flaws. First, aid was often fragmented across multiple agencies and contractors, leading to duplication, poor coordination, and blurred accountability. Second, political time horizons in Washington frequently distorted long-term development goals, as funding and priorities shifted with electoral cycles. These systemic weaknesses enabled institutional leakage and weakened recipient governments’ capacity to deliver sustained results.

Programmable finance addresses these failures by consolidating execution within a tamper-resistant, rule-based infrastructure. Rather than dispersing implementation across siloed intermediaries, a U.S. SWF built on smart contracts would centralize execution standards while decentralizing delivery to credible actors. Automated disbursement mechanisms ensure consistency across political cycles, insulating long-term development programs from short-term volatility. Most importantly, the focus shifts from compliance with donor preferences to measurable, verifiable outcomes. In doing so, programmable finance offers not just a technical fix, but a governance innovation — one that disciplines incentives, builds institutional resilience, and restores credibility to U.S. leadership in the Global South.

Success in Parametric Insurance in Kenya vs. Failure in NetEase Blockchain Ventures in China

The Lemonade Foundation’s parametric insurance project in Kenya illustrates how programmable finance can operationalize governance standards in fragile environments. By deploying smart contracts linked to objective environmental data — such as rainfall levels — the system automated payouts to 7,000 farmers during the 2023 drought, eliminating the need for manual claims processing. This reduced transaction costs, mitigated corruption risks, and aligned financial flows with verifiable outcomes — precisely the conditions envisioned in the programmable finance framework.

Critically, this model avoided the pitfalls of ex ante conditionality. Rather than requiring farmers to navigate complex compliance procedures, funds were disbursed ex post through automated verification. The transparent, tamper-resistant infrastructure fostered local trust and expanded access to financial services without the need for external enforcement.

By contrast, China’s NetEase blockchain initiatives illustrate the limits of programmable finance when governance standards are poorly defined or user trust is lacking. Despite leveraging blockchain infrastructure to offer token-based rewards across platforms like Star and Quanquan, these projects failed to deliver transparent or consistent benefits to users. Centralized control over token economies, opaque algorithms, and regulatory uncertainty undermined adoption — and all major projects were abandoned by 2019.

This failure reflects a structural weakness of China’s development model: the deployment of technology without institutionalized transparency or mechanisms for contestability. Without credible governance standards embedded into financial architecture, programmable tools risk devolving into instruments of centralized control — replicating the very opacity they are designed to overcome.

The Strategic Payoff: Governance-Driven Investment at Scale

The failure of U.S. foreign aid has been less about funding levels — and more about institutional leakage. Traditional development models are vulnerable to capture by intermediaries — contractors, consultants, and political elites — who extract value without delivering outcomes. Programmable finance offers a structural solution. By tying disbursements to transparent, performance-based contracts, it minimizes leakage and re-aligns incentives. It enables a governance platform where local actors compete not for patronage, but for credibility.

However, while programmable finance automates enforcement and enhances transparency, it remains susceptible to manipulation at the point of beneficiary selection. Without safeguards, local elites may game the system—registering ineligible or co-opted recipients to capture resources under the veneer of compliance. In such cases, smart contracts risk becoming digitized tools for old patterns of political favoritism. To fulfill its promise, programmable finance must be paired with robust, politically neutral mechanisms for identity verification, decentralized validation, and randomized auditing. Only then can it serve as a truly scalable model of development finance rooted not just in code, but in institutional integrity — one that competes not by replicating China’s approach, but by offering a better alternative.

 

 

Disclaimer: Authored by Mark(Won Min) Seo, with light editing support from ChatGPT (OpenAI). AI contribution: ~10% as assessed by AI.

Source: https://foreignpolicyblogs.com/2025/04/28/programmable-finance-for-accountable-development-rethinking-the-u-s-sovereign-wealth-fund-strategy-in-the-global-south/