Monday Bytes (January 27, 2020)

Written by Malik Corbett

Digital Currencies Wakes Up the World’s Elite in Davos 

Last week world government officials, business leaders, academics and other elites gathered in Davos, Switzerland for the annual World Economic Forum (WEF). The WEF announced that they will form a Global Consortium for Digital Currency Governance group which will focus on outlining a global regulatory framework for cryptocurrencies. The WEF will  bring companies, financial institutions and governments together on a coordinated global level. 

The news coming out of Davos last week is positive for the crypto industry as a whole and is yet another sign that the nascent technology is a disruptor to the global financial system. 
The news comes off the heels of the central banks of Sweden, Canada, Switzerland, the U.K., Japan and the European Central Bank (ECB) in coordination with the Bank of International Settlement (BIS) to form a working group to investigate use cases for central bank digital currencies or CBDCs. 

Trade Tension Heighten Between Western Allies

“Depending on what form the carbon tax takes, we will react to it — but if it is in its essence protectionist, like the digital taxes, we will react,”

~ US secretary of commerce, Wilbur Ross 

I have written previously about the dangers of the increasing protectionist policies by governments around the world and how it’s causing economic friction between countries globally. In fact, a new world order is beginning to take shape where new trading networks are being developed (think China’s Silk Road) and new economic and military alliances are being formed (think Turkey and Russia or Italy and China).  

The tension between the EU and U.S. doesn’t seem to have any resolution on the horizon because the two allies geopolitical goals are not aligned as it relates to the topics of trade and climate change. Furthermore, the European Union is looking to take a global lead on issues such as climate change and technology challenges such as digital tax, consumer privacy and cybersecurity. The EU argues that the business environment has changed and international business rules need to be updated to reflect the changes. 

On the contrary, the Trump administration sees the EU proposed digital tax and carbon tax as protectionist acts to unfairly punish American companies. In fact, the Trump administration wants the EU to be tougher on China who they feel are not doing enough on issues and challenges related to technology and climate change. 

To that end, the Trump administration is right to be concerned how the EU tax proposals will affect American companies by imposing extra cost to American imports. Under the EU carbon tax proposal, EU importers of steel, aluminum and other products with high carbon footprints would have to buy carbon allowances, as EU producers do under the EU Emissions Trading System. In essence, this would effectively introduce an import tax and raise the price of imported goods, boosting the competitiveness of metals and other goods produced in the EU. And here is the crux of the divide between the United States and the European Union; Brussels wants to level the playing field for EU based companies who are burdened with the cost of EU Emissions Trading System (ETS) which is the first large greenhouse gas emissions trading scheme in the world.  And the United States is concerned with economic growth, especially during an election year.    

“The world is dependent on having reasonably priced energy over the next 10 or 20 years or we’re not going to create jobs and we’re not going to create growth.”

~ US Treasury secretary, Steven Mnuchin

While European governments face political pressure as it relates to climate change, American domestic politics are different and more importantly the current administration geopolitical goals are not aligned with Europe. First of all, President Trump is in a heated impeachment trial  in the Senate and is facing mounting political pressure on all fronts. Furthermore, 2020 is an election year in the U.S. and the Trump administration will look to protect American tech, material and energy industries which are some of the best performing sectors of the S&P 500. Furthermore, the United States is in the midst of a trade war with China which is already having an effect on US companies. To the Trump administration, keeping a wobbly American economy from slipping into a downturn right before the U.S. presidential election is of immense importance to the current administration. An EU ETS or digital tariffs on American companies is sure to increase the strain between the U.S. and EU relations which could turn eventually spill over into a full blown trade war. 


Could Cryptocurrency be used as an On/Off Ramp to Separate Economic Systems?  

The world is changing, that much is quite easy to discern. What’s less clear is how the world will look in 5 or 10 year. However, cryptocurrencies and digital assets, in particular public cryptonetworks and their native tokens are well positioned to be an important “connector” for potentially separate and different economic systems. For example, Bitcoin can be used to move money around the world between an American, European and/or Chinese economic systems powered by their own native digital currency and assets.

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