Abstract
As stated in the previous chapter, the most pressing issue facing the adoption of technology to address TBTF and the fragmentation of the financial services is the existing regulatory and policy framework. We have also seen that although finance becomes increasingly cashless, the validation and auditing operations of financial firms are still largely dependent on manual and/or archaic processes. However, this operating methodology is attuned to the current regulatory settings and, in part, is the reason for its continued existence. Furthermore, the disconnect between finance and macroeconomics has resulted in the execution of unsatisfactory monetary and fiscal policies that have been unable to adequately address the growing debt of nation-states and have been unsuccessful in detecting, let alone addressing, systemic risks posed by large institutions. Thus, prior to establishing a new framework for a cashless age, we need to determine what are the obstacles and limitations of the current regulatory and policy frameworks.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Notes
- 1.
In terms of IT systems, data sharing, authorization, fraud, and arbitration.
- 2.
Since 1979, banks have been rated using the interagency Uniform Financial Institutions Ratings System (UFIRS), recommended by the Federal Reserve and other banking agencies. This system evaluates six components: Capital, Assets, Management, Earnings, Liquidity and Sensitivity to Market Risk and is referred to by acronym CAMELS. A Rating of 3, 4, or 5 may subject the bank to enforcement actions, enhanced monitoring, and limitations on expansion. Source : https://www.fedpartnership.gov/bank-life-cycle/topic-index/bank-rating-system
- 3.
CoCo bonds are financial instruments that can be converted to equity if certain capital ratio conditions are met (e.g., when capital falls below 7.5%). This allows banks to increase their capital ratio if it falls below a predefined threshold. Refer notes: CoCo bonds and the Blockchain.
- 4.
The Bank Payment Obligation (BPO) is a payment technique developed in 2012 by Swift and the International Chamber of Commerce (ICC). The BPO is an irrevocable commitment given by a bank to another bank to make a payment on any date after an event. This event has to be proved by the electronic reconciliation of data produced by the Swift TSU (trade services utility).
- 5.
essDOCS is a UK-based trade services company that provides paperless trade documentation services, such as Electronic Bills of Lading (eB/Ls), Electronic Barge Nominations & Documents, Bank Payment Obligations plus (BPO+), eDocs, eDocumentary Collections, Electronic Bunker Receipts, etc.
- 6.
SWIFT's Trade for Corporates, the MT798, offers corporates the use of established interbank industry standards in trade finance through structured messages.
- 7.
Asia represents US $400 billion of this figure, while Africa represents US $120–225 billion.
- 8.
The Big Four consists of PricewaterhouseCoopers, Deloitte Touche Tohmatsu, Ernst & Young, and KPMG. These four auditing firms provide auditing, tax, and consulting services to large corporations and currently share the vast majority of the sector’s market share.
- 9.
The false allocation of resources has led to an increasing amount of capital being diverted to investments in financial instruments instead of actual business creation. Another side effect of this practice is the diversion of capital to real estate, especially in advanced economies which are witnessing technological advances. As ICT continues to change the role of tasks and jobs in the market, physical assets are becoming less important than software. There is one exception however: real estate. As the price of technology continues to fall, it is seen that the price of land continues to rise as investors can always be certain of the demand for land. This demand for land is not just in terms of the area of land but also its location. As the amount of land in desirable locations is already fixed, the only thing that can change is the price. It is for this reason that the price of real-estate has continued to rise and why most bank lending today is not allocated for the creation of new businesses but for residential mortgages. As per the Bank of England, 65% of bank lending is directed to residential mortgages while only 14% is directed to non-real estate business creation (Bank of England, 2012).
- 10.
See the cost of printing money at: http://www.federalreserve.gov/faqs/currency_12771.htm
- 11.
The New Keynesian model is the most popular alternative to the real business cycle theory among mainstream economists and policymakers. Whereas the real business cycle model features monetary neutrality and emphasizes that there should be no active stabilization policy by governments, the New Keynesian model builds in friction that generates monetary non-neutrality and gives rise to a welfare justification for activist economic policies (Sims, 2012)
- 12.
This is known as the net interest margin (NIM). NIM = (Investment Returns – Interest Expenses) / Average Earning Assets.
- 13.
Note: The authors systematically refer to their model in terms of the CBDC. The word “Blockchain” is never used anywhere in the report except for two exceptions: first in the keywords classification in the abstract and second in the references, as one of the papers cited has the word “Blockchain” in the title.
- 14.
The three functions of money: i) medium of exchange (money is used as a trade intermediary to avoid the inconveniences of a barter system); ii) store of value (money can be saved and retrieved in the future); and iii) unit of account (money acts as a standard numerical unit for the measurement of value and costs of goods, services, assets, and liabilities). Source: (ECB, 2015).
- 15.
Refer to the article “Is Bitcoin Legal” (2014), on Coindesk: http://www.coindesk.com/information/is-bitcoin-legal/
- 16.
There are a number of countries where multiple currencies are used simultaneously albeit unofficially, e.g., Singapore (Brunei dollar & Singapore dollar), Ukraine (Ukrainian hryvnia & Russian rouble);, and Zimbabwe (Botswana pula, British Pound, Chinese Yuan, Euro, Indian Rupee, South African Rand and USD). Some currencies may peg their values to another, but this does not mean that the pegged currency is an official currency. It may be preferred by businesses, but taxes are rarely paid in foreign reserve.
- 17.
The authors use the Lagos-Wright model, which is a framework for monetary theory and policy analysis.
- 18.
Website address: https://99bitcoins.com/bitcoinobituaries/
- 19.
Wells Fargo had been engaged in a multi-year scam. A clutch of employees (5300 exactly) at different branches opened over 2 million fake deposit & credit card accounts and used phony emails to enrol consumers in online- banking services without customer authorization. Clients were hit with fees for services they never asked for.
- 20.
Chapter 3 in the newly released (and similarly titled) book, Rethinking Capitalism: Economics and Policy for Sustainable and Inclusive Growth, edited by Michael Jacobs and Mariana Mazzucato (August 2016).
- 21.
GDP appears constantly in the news, business, and politics. Yet in recent times, its ability to appropriately represent the true productivity of a country is increasingly criticized. While writing a critique on this topic is beyond the scope of this book, readers are invited to look at other indicators such as the Social Progress Index and the OECD Better Life Index. Another excellent resource is Diane Coyle’s, GDP: A Brief but Affectionate History, which shows why this statistic was invented, how it has changed, what are its pros and cons and why it is inappropriate for a 21st century economy driven by innovation, services, and intangible goods.
- 22.
The concept of technological underemployment and unemployment has been explored in detail by Guy Standing in his very excellent book, The Precariat: The New Dangerous Class, (2011).
- 23.
Overt Money finance is the act of creating new money and giving it to people via spending or tax cuts.
- 24.
Tax expenditures: when the government spends revenue via the tax system by giving a deduction on taxable income. These expenditures normally benefit higher earners.
Author information
Authors and Affiliations
Rights and permissions
Copyright information
© 2017 Kariappa Bheemaiah
About this chapter
Cite this chapter
Bheemaiah, K. (2017). Innovating Capitalism. In: The Blockchain Alternative. Apress, Berkeley, CA. https://doi.org/10.1007/978-1-4842-2674-2_3
Download citation
DOI: https://doi.org/10.1007/978-1-4842-2674-2_3
Published:
Publisher Name: Apress, Berkeley, CA
Print ISBN: 978-1-4842-2673-5
Online ISBN: 978-1-4842-2674-2
eBook Packages: Professional and Applied ComputingApress Access BooksProfessional and Applied Computing (R0)