Tag Archives: Trust

Governments Adopt the Blockchain, To Improve Efficiency and Build Trust

The Economist reports about government initiatives aimed at using blockchain technology in the public sector.

  • Possible uses include land registries, identity-management systems, health-care records, or elections.
  • Proponents expect the technology to improve efficiency and transparency and foster trust.
  • Adoption requires significant investments.
  • According to a survey “nine in ten government organisations say they plan to invest in blockchain technology to help manage financial transactions, assets, contracts and regulatory compliance by next year.”
  • Sweden tests a blockchain-based land registry; Dubai’s government wants to completely shift to blockchain technology by 2020; Estonia stores health records and protects its shared government systems using blockchain-like technolog; Georgia’s land registry uses blockchain technology and has processed 160,000 transactions; Ukraine wants to become “one of the world’s leading blockchain nations,” not least to build trust between government and citizens.

Tax Evasion in a (the) New World

In the FT, Vanessa Houlder reports about the tax evasion business. The new regulatory environment has led to portfolio adjustments and new types of behavior, and it exposes vast differences in enforcement across countries:

  • Diamonds in vaults rather than financial assets.
  • Trusts in South Dakota rather than anonymous bank accounts.
  • Moving to a different country rather than just shifting assets.
  • FATCA versus the Common Reporting Standard.

The article also links to an article by Kara Scannell and Vanessa Houlder earlier in the year entitled “US tax havens: The new Switzerland.” That article includes the following quotes:

I think the US is already the world’s largest offshore centre. It has done a real good job disabling competition from Swiss banks.

In a world where it’s very hard to hide ownership or hide assets sometimes the easiest place [is one] no one would normally think of, which is the US.

Decentralization through the Blockchain?

The Economist reviews the blockchain technology underlying Bitcoin—“a way of making and preserving truths.”

It is the blockchain that replaces this trusted third party. A database that contains the payment history of every bitcoin in circulation, the blockchain provides proof of who owns what at any given juncture. This distributed ledger is replicated on thousands of computers—bitcoin’s “nodes”—around the world and is publicly available. But for all its openness it is also trustworthy and secure. This is guaranteed by the mixture of mathematical subtlety and computational brute force built into its “consensus mechanism”—the process by which the nodes agree on how to update the blockchain in the light of bitcoin transfers from one person to another.

One interesting aspect of the blockchain technology is that it provides incentives for “mining”, rendering it self-sustainable. The future may lie in blockchain applications beyond payments, for example in securities clearance, certification and the like.

Did Greece or “Germany” Surrender?

Social networks blame the German negotiators at the recent Euro summit for trying to humiliate Greece and dictating policy. This does not make any sense if one views the agreement as a loan contract between parties that are free to choose. But does it make any sense from a broader, political perspective?

According to Open Europe,

Italian Finance Minister Pier Carlo Padoan told Il Sole 24 Ore, “Almost all [Eurozone countries] were against a new [bailout] programme. Only the French, tiny Cyprus and we were in favour of a compromise. Maybe this isn’t well understood.”

In the FT, Gideon Rachman writes:

What nonsense. If anybody has capitulated, it is Germany. The German government has just agreed, in principle, to another multibillion-euro bailout of Greece — the third so far. In return, it has received promises of economic reform from a Greek government that makes it clear that it profoundly disagrees with everything that it has just agreed to.

German taxpayers seem to agree. According to Open Europe,

a snap Infratest Dimap poll for ARD found that 52% of respondents supported the agreement and 44% opposed it, while 62% said they want Greece to remain within the Eurozone compared to 32% who want it to leave. However, 78% of respondents said they did not trust the Greek government to fully implement the agreement.


The Economist’s Buttonwood column: “Even More on Debt and Democracy.”

Lars Feld’s comment in the FT.

Lee Jong-Wha’s comment on Project Syndicate.


Scandinavia’s Success

In an online book published by the Institute of Economic Affairs, Nima Sanandaji argues not only that the Scandinavian success story predates the welfare state but also that the welfare state actually undermined the success story. From the book’s summary:

Many analyses of Scandinavian countries conflate correlation with causality. It is very clear that many of the desirable features of Scandinavian societies, such as low income inequality, low levels of poverty and high levels of economic growth, predated the development of the welfare state. It is equally clear that high levels of trust also predated the era of
high government spending and taxation. All these indicators began to deteriorate after the expansion of the Scandinavian welfare states and the increase in taxes necessary to fund it.

Fintech Competition for Banks

In a series of articles, The Economist reports about technology companies that compete with traditional banks in areas ranging from lending to payments and wealth management.

The introductory article refers to AngelList and references reports by Goldman Sachs (The Future of Finance, copy posted here), BCG and Accenture. And it highlights two factors driving the structural change which I have also emphasized in a recent article: Technology and vanishing trust in banks. The other articles cover:

Updates—some more firms in the business:


“Bankensektor im Umbruch (Structural Changes in Banking),” FuW, 2015

Finanz und Wirtschaft, April 18, 2015. PDF. Ökonomenstimme, April 20, 2015. HTML.

  • Banks increasingly face competition in bread-and-butter businesses like term deposits, lending and payments.
  • Two trends shape the sector’s changes: Falling trust in banks, both at the political level and by individual clients; and the rise of the internet.
  • Trust has been squandered. But with cheap access to information, it also has lost importance.
  • Asymmetric information in financial markets might become less of a friction. This could turn into an existential threat for banks.
  • When trust is less important and technology more versatile, increasing returns to scale in the provision of financial services might be a thing of the past. And so the universal bank. New regulatory and tax regimes could foster the process of structural change.

Here are some links to background information: