Biodun Iginla, BBC News

Biodun Iginla, BBC News
Showing posts with label The Economist Intelligent Unit. Show all posts
Showing posts with label The Economist Intelligent Unit. Show all posts

Thursday, April 26, 2018

Analysis: How to regulate cryptocurrencies

by Tamara Kachelmeier and Biodun Iginla, Technology Analysts, The Economist Intelligent Unit, New York

Digital dos and don’ts

Three questions for the overseers of digital assets


THE wild ride seems to have calmed. Late last year speculators sent the price of crypto-currencies soaring. The value of bitcoin, the best-known, has fallen by half since then. But the momentum behind all things crypto remains powerful. Bitcoin is still worth seven times what it was just a year ago. In the first quarter of this year, according to CoinDesk, a news service, $6.3bn was raised through initial coin offerings (ICOs), a form of funding in which firms issue digital tokens, more than in all of 2017. Last month the Student Loan Report, a website, found that one in five American students it asked had used part of their loan to join the crypto rush.
No wonder regulators want to exert greater control over the crypto-sphere. The chance to raise money via ICOs has attracted as many con men as it has genuine entrepreneurs. The head of Europol, Europe’s policing agency, has estimated that 3-4% of the region’s criminal proceeds are now laundered through crypto-assets. Plenty in the industry think regulation would help legitimise crypto. Yet crypto-enthusiasts are also right to fear that overzealous regulation, like China’s ban on crypto-exchanges and ICOs, could throttle a promising technology. To achieve the right balance, regulators must find sensible answers to three questions: what are crypto-assets? How should day-to-day risks be managed? And what threat do they pose to financial stability?

Latest stories

See more
Today there is no consensus on what a crypto-asset is. Even within countries, authorities disagree on how to classify them. Are they a commodity, a currency, a security or their own, peculiar asset class? In America the Securities and Exchange Commission has hinted that it will treat most tokens issued through ICOs as securities. That would mean onerous disclosure requirements. But a blanket approach does not capture the shape-shifting nature of many digital assets. Better to go the way of the Swiss regulator, FINMA, which in February said it would base treatment on their actual function—ie, whether they are used for payments; as a utility token that gives its holder access to a specific service; or as an investment. This also means a token’s classification can change over time.
Such decisions point towards how to deal with day-to-day crypto-risks, from money-laundering to consumer protection. Criminals were among the earliest adopters of digital currencies. Regulation could help smoke them out by extending existing anti-money-laundering rules into the crypto-sphere (see article). The obvious targets are the exchanges where ordinary money is swapped for crypto and vice versa. Regulators should demand that these exchanges apply similar standards to those of banks. These include requiring identification from all customers and keeping a record of unusual transactions. Several countries, including Australia and South Korea, already do this; earlier this month the EU passed a directive stipulating the same thing. There is a need for a harmonised approach, in order to prevent illicit flows of money to crypto-havens.
As for how much protection consumers should enjoy when they invest in crypto-assets, some advocate restricting the market to accredited investors, on the ground that they may be better at judging risks than ordinary punters and are certainly more cushioned against any losses. But the bar to imposing bans on how people can risk their own money ought to be high. The authorities in many countries issue explicit warnings about the risks associated with crypto-speculation; several are clamping down on the advertising of ICOs. That, allied with existing rules to punish out-and-out fraud, is sufficient.
The third question is easily answered at the moment. Crypto-assets do not yet pose a risk to global financial stability; cumulatively, they are worth less than 3% of the combined balance-sheets of the central banks in America, Britain, Germany and Japan. But the wild swings of bitcoin are a warning that things can quickly change. Regulators must keep a weather eye on the factors that could heighten systemic risk, such as the amount of borrowing done by crypto-investors.
Lassoing cryptos
Regulating crypto-assets is no easy task. Too much red tape may hamper innovation. Some think, for example, that ICOs could give rise to a new form of “crypto co-operative” in which digital tokens provide founders, employees and users with a shared interest in its success. At the same time, a market in which scammers and criminals roam freely deters honest actors from taking part. The fact that all of this is new technological terrain adds to the pressure on regulators to show unusual flexibility. For as long as crypto has its Wild West image, regulators will need to keep their frontier mentality.

This article appeared in the Leaders section of the print edition under the headline "Taming crypto"


Reuse this content
Posted by at No comments:
Labels: , , , , ,

Thursday, October 20, 2016

The threat from Russia

Russia


How to contain Vladimir Putin’s deadly, dysfunctional empire




FOUR years ago Mitt Romney, then a Republican candidate, said that Russia was America’s “number-one geopolitical foe”. Barack Obama, among others, mocked this hilarious gaffe: “The 1980s are now calling to ask for their foreign policy back, because the cold war’s been over for 20 years,” scoffed the president. How times change. With Russia hacking the American election, presiding over mass slaughter in Syria, annexing Crimea and talking casually about using nuclear weapons, Mr Romney’s view has become conventional wisdom. Almost the only American to dissent from it is today’s Republican nominee, Donald Trump.
Every week Vladimir Putin, Russia’s president, finds new ways to scare the world. Recently he moved nuclear-capable missiles close to Poland and Lithuania. This week he sent an aircraft-carrier group down the North Sea and the English Channel. He has threatened to shoot down any American plane that attacks the forces of Syria’s despot, Bashar al-Assad. Russia’s UN envoy has said that relations with America are at their tensest in 40 years. Russian television news is full of ballistic missiles and bomb shelters. “Impudent behaviour” might have “nuclear consequences”, warns Dmitry Kiselev, Mr Putin’s propagandist-in-chief—who goes on to cite Mr Putin’s words that “If a fight is inevitable, you have to strike first.”
In fact, Russia is not about to go to war with America. Much of its language is no more than bluster. But it does pose a threat to stability and order. And the first step to answering that threat is to understand that Russian belligerence is not a sign of resurgence, but of a chronic, debilitating weakness.
Vlad the invader
As our special report this week sets out, Russia confronts grave problems in its economy, politics and society. Its population is ageing and is expected to shrink by 10% by 2050. An attempt to use the windfall from the commodity boom to modernise the state and its economy fell flat. Instead Mr Putin has presided over a huge increase in government: between 2005 and 2015, the share of Russian GDP that comes from public spending and state-controlled firms rose from 35% to 70%. Having grown by 7% a year at the start of Mr Putin’s reign, the economy is now shrinking. Sanctions are partly to blame, but corruption and a fall in the price of oil matter more. The Kremlin decides who gets rich and stays that way. Vladimir Yevtushenkov, a Russian tycoon, was detained for three months in 2014. When he emerged, he had surrendered his oil company.
Mr Putin has sought to offset vulnerability at home with aggression abroad. With their mass protests after election-rigging in 2011-12, Russia’s sophisticated urban middle classes showed that they yearn for a modern state. When the oil price was high, Mr Putin could resist them by buying support. Now he shores up his power by waging foreign wars and using his propaganda tools to whip up nationalism. He is wary of giving any ground to Western ideas because Russia’s political system, though adept at repression, is brittle. Institutions that would underpin a prosperous Russia, such as the rule of law, free media, democracy and open competition, pose an existential threat to Mr Putin’s rotten state.
For much of his time in office Mr Obama has assumed that, because Russia is a declining power, he need not pay it much heed. Yet a weak, insecure, unpredictable country with nuclear weapons is dangerous—more so, in some ways, even than the Soviet Union was. Unlike Soviet leaders after Stalin, Mr Putin rules alone, unchecked by a Politburo or by having witnessed the second world war’s devastation. He could remain in charge for years to come. Age is unlikely to mellow him. 
Mr Obama increasingly says the right things about Putinism—he sounded reasonably tough during a press conference this week—but Mr Putin has learned that he can defy America and come out on top. Mild Western sanctions make ordinary Russians worse off, but they also give the people an enemy to unite against, and Mr Putin something to blame for the economic damage caused by his own policies.
Ivan the bearable
What should the West do? Time is on its side. A declining power needs containing until it is eventually overrun by its own contradictions—even as the urge to lash out remains.
Because the danger is of miscalculation and unchecked escalation, America must continue to engage in direct talks with Mr Putin even, as today, when the experience is dispiriting. Success is not measured by breakthroughs and ceasefires—welcome as those would be in a country as benighted as Syria—but by lowering the chances of a Russian blunder.
Nuclear miscalculation would be the worst kind of all. Hence the talks need to include nuclear-arms control as well as improved military-to-military relations, in the hope that nuclear weapons can be kept separate from other issues, as they were in Soviet times. That will be hard because, as Russia declines, it will see its nuclear arsenal as an enduring advantage.
Another area of dispute will be Russia’s near abroad. Ukraine shows how Mr Putin seeks to destabilise countries as a way to stop them drifting out of Russia’s orbit (see article). America’s next president must declare that, contrary to what Mr Trump has said, if Russia uses such tactics against a NATO member, such as Latvia or Estonia, the alliance will treat it as an attack on them all. Separately the West needs to make it clear that, if Russia engages in large-scale aggression against non-NATO allies, such as Georgia and Ukraine, it reserves the right to arm them.
Above all the West needs to keep its head. Russian interference in America’s presidential election merits measured retaliation. But the West can withstand such “active measures”. Russia does not pretend to offer the world an attractive ideology or vision. Instead its propaganda aims to discredit and erode universal liberal values by nurturing the idea that the West is just as corrupt as Russia, and that its political system is just as rigged. It wants to create a divided West that has lost faith in its ability to shape the world. In response, the West should be united and firm.

This article appeared in the Print Edition with the headline: Putinism
From the print edition: Leaders
Posted by at No comments:
Labels: , , , , , , , ,

Friday, June 17, 2016

Bernie neither drops out nor endorses Hillary

Slouching towards Philadelphia



“THE major political task that we face in the next five months is to make certain that Donald Trump is defeated and defeated badly,” said Bernie Sanders in a 23-minute address live-streamed across the country from his hometown of Burlington, Vermont on June 16th. But rather than conceding defeat and focusing his energy on helping his rival, Hillary Clinton, to inflict that defeat, the combative senator stood pat on his principal mission: “We must continue our grassroots efforts to create the America that we know we can become. And we must take that energy into the Democratic National Convention on July 25th in Philadelphia.”
The speech was a disappointment to those who hoped that Mr Sanders would at last rally behind Mrs Clinton, who needs the support of his young and enthusiastic troops. But he does not seem to trust her to keep the flame of his revolution alive. “It is no secret that Secretary Clinton and I have strong disagreements on some very important issues,” he said. He vowed to continue discussions between his campaign and hers, to make sure that his supporters’ voices are heard and that the Democratic Party passes the most progressive platform in its history. He would work with Mrs Clinton, he said, to transform their party into a party of the working class and young people, and not just wealthy campaign contributors. He wants the Democrats to have “the courage to take on Wall Street, the pharmaceutical industry, the fossil-fuel industry and the other powerful special interests”.
Earlier on June 16th Jeff Weaver, Mr Sanders’s campaign manager, conceded that the senator was no longer lobbying superdelegates, putting an end to an argument made by some Bernie fans: that they still had a shot at the nomination by winning over office-bearers. Mr Weaver insisted that the Democratic Party would come out of the convention as a very unified party. But his boss seemed to contradict him a few hours later by insisting on his “political and social revolution”—and a credo that is much more progressive than Mrs Clinton’s.
This campaign was always about transforming America, he said. “It is about ending a campaign-finance system which is corrupt and allows billionaires to buy elections. It is about ending the grotesque level of wealth and income inequality that we are experiencing, where almost all new wealth and income goes to the people on top, where the 20 wealthiest people own more wealth than the bottom 150m.” He talked about Americans dying at a younger age than their parents because of unemployment, low wages, suicide, drugs and alcohol, and deplored that America had the highest level of childhood poverty of almost any major country. An advocate of a universal health-care system and tuition-free state colleges, he insisted that his campaign is “about ending the disgrace of tens of thousands of Americans dying every year from preventable deaths because they either lack health insurance, have high deductibles or cannot afford the outrageously high cost of the prescription drugs they need.”
Even as he professed beliefs that the pragmatic Mrs Clinton will never embrace, and thus emphasised their disunity, he also seemed to start a long goodbye to his supporters, by thanking them and taking account of what they achieved. Together, 2.7m people made over 8m individual contributions to our campaign, he said, more than to any campaign in American history. And most of the dosh came from low-income contributors whose donations averaged $27 apiece. The campaign received more than 12m votes by winning 22 state primaries and caucuses and coming very close to winning in five other states.
Mr Sanders is right when he says that his ideas can no longer be dismissed as those of a fringe. Almost everyone underestimated him, including Mrs Clinton, who ignored him for too long, to her detriment. Mr Sanders himself admitted that he had not anticipated such a success. But he will be judged by how he manages the remarkable inroads he has made into the established eco-system. Being a thorn in the side of his party’s candidate in one of the most important presidential races in history may not be the best way to go about it.
Many Democrats have already moved into general-election mode. Also on June 16th the leadership of the AFL-CIO, a federation of unions with 12m members, endorsed Mrs Clinton. The unions vowed that “it will put in motion its ground campaign to elect Hillary Clinton and union-endorsed candidates across the country”. Mr Trump came out with an angry statement on the same day, claiming that more AFL-CIO members will vote for him than for Mrs Clinton, whom he called an “enemy of the working people”. He also cited Mr Sanders’s attacks against her. “Hillary Clinton and her husband have made hundreds of millions of dollars doing favours and selling access to Wall Street, special interests and oppressive foreign regimes,” said Mr Trump. “As Bernie Sanders said, ‘Why, over her political career, has Wall Street been the major campaign contributor to Hillary Clinton?’ They own Hillary Clinton and she will do whatever they tell her to’.”
If Mr Sanders is really as committed to defeating Mr Trump as he says he is, he should perhaps try to avoid giving Mr Trump any additional ammunition against Mrs Clinton. He frequently pointed out polls that suggested he would be more likely than Mrs Clinton to beat Mr Trump in a general-election match. He should now put that advantage to good use.
Posted by at No comments:
Labels: , , , ,
Subscribe to: Posts (Atom)