On October 26, 2015, The Organization for Economic Co-operation and Development (OECD), an organization “created as an economic counterpart to NATO,” held a hearing on disruptive innovation in the financial sector.
An unclassified document published as an “Issues Paper” entitled “Refining Regulation To Enable Major Innovations In Financial Market” was prepared by Dr. Sean Ennis, a Senior Economist in the OECD's Competition Division on behalf of the Secretariat (for the 60th meeting of Working Party No. 2) was obtained by CoinTelegraph. The topics discussed were peer-to-peer lending, crowdfunding of equity, virtual currencies and innovative payment/currency exchange solutions.
The report notes that:
“Perhaps the most significant overall development in financial market innovation between 2002 and 2013 is, and will continue to be, the expansion of market-based finance, sometimes referred to as ‘shadow banking,’ which has increased in value of assets from about USD 25 trillion to more than USD 75 trillion over this period.”
It goes on to say that:
“[…] [The] ultimate focus [of this issues paper] is to point out areas where regulation restricts development of innovation. In the case of market-based finance, however, regulation has not restricted the development but rather expanded it (by having higher regulation of banking and certain other regulated activities, while leaving the shadow banking system largely unregulated).”
And with that said, CoinTelegraph will focus on a particular note in the report -- while seemingly balanced contains a highly charged claim about illegal uses of Bitcoin and how that might be interpreted by government institutions.
First, it should be noted that the report may (or may not) not reflect the views and opinions of OECD:
The opinions expressed and arguments employed herein do not necessarily reflect the official views of the Organization or of the governments of its member countries.
And further, the paper disclaims an interpretation of jurisdiction:
This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.
However, this is not OECD’s first encounter with Bitcoin. In a 2014 article for CoinDesk, Jon Matonis, then Executive Director of the Bitcoin Foundation wrote “Why the OECD Needs to do its Homework on Bitcoin.” In regards to a working paper issued by OECD entitled “The Bitcoin Question: Currency Versus Trust-less Transfer Technology”, Matonis reported that:
“[...] the paper represents one of the first official analyses on bitcoin in the context of contract law, legal tender, and plenary powers. Besides grossly misunderstanding the economic nature of bitcoin, the general prescription for public policy would be disastrous, accelerating a 'parallel' monetary system faster than normal and simultaneously depriving millions of people of seamless participation.”
Disruption or Interruption?
The Issues Paper contains a mind boggling claim that illegal uses of Bitcoin could lead to its outright ban:
"As a result of the apparent anonymity of transactions, some users of virtual currencies were involved in improper and illegal activities, including money laundering and transfer of value for illegal goods. As a result, certain governments have sought to take measures that effectively rule out its use as a currency. These create a clear and implied possibility of government’s declaring the virtual currencies illegal (with foot note 35)”
Footnote 35 goes on to say:
"Even if a virtual currency is not declared illegal, discussing the possibility that a currency could be made illegal damages the mutual confidence in the future value of the virtual currency that is necessary for both parties to a transaction to regard it as serving as a store of value."
A bold claim especially when not put in a broader and greater context. Perhaps the OECD forgot to consult the European Union?
The European Union
In a Best Practices Guideline” The OECD notes that there is a “Joint OECD/EU Initiative” for “Better Regulation in Europe - The EU 15 project”:
“Better Regulation improves economic and social welfare prospects, underpins growth and strengthens resilience The EU15 project assessed capacities for effective regulatory management across the EU, through individual reviews of fifteen member states, covering half the OECD membership.”
The European Union produces the “European system of accounts” or ESA 2010 for a “reliable and comparable statistical description of the economies of the Member States and the Union itself.”
ESA 2010 contains a section “Borderline Cases” which requires inclusion and reporting of so called illegal trade in its respective members Gross Domestic Product (GDP):
The definition of a transaction implies that an interaction between institutional units be by mutual agreement […] Illegal economic actions shall be considered as transactions when all units involved enter the actions by mutual agreement […] Thus, purchases, sales or barters of illegal drugs or stolen property are transactions, while theft is not.
Indeed. According to The United Kingdom’s “Civil Service Quarterly” The Blue Book from the Office for National Statistics (ONS) describes economic activity in the UK include spending on prostitution and drugs for the first time in 2014.
“The national accounts provide the essential framework for producing many of the key statistics on the economy that appear in the media every day. As well as familiar numbers, such as the rate of economic growth measured by changes in GDP, the national accounts offer a rich mine of information on a huge range of transactions carried out by households, companies, and government. These are vital for policymakers, and anyone interested in understanding how the economy is performing.”
The United Kingdom is not the first to report on black market transactions to conform with ESA 2010.
Last year the Economist reported in “Sex, drugs and GDP Italy’s inclusion of illicit activities in its figures excites much interest” that:
“The announcement […] by Istat, Italy’s statistical body, that […] it would include drug trafficking, prostitution, and alcohol-and-tobacco smuggling in its economic-output numbers has generated a stream of sniggering headlines. To some, it smacks of 1987, when Italy started taking account of its shadow economy, the off-the-books business which makes up about a fifth of Italian GDP. As a result, the economy grew by 18% overnight, surging past Britain to be the West’s fourth-largest economy […].”
Returning to the OECD Issue Paper, which states in a footnote that “discussing the possibility that a currency could be made illegal damages the mutual confidence in the future value of the virtual currency” because the currency was involved in “improper and illegal activities” should be taken in a greater context that many of these so called illegal activities are of “mutual consent,” and therefore make up the GDP of a nations, which reflect the economic health of a nation.
Is it not like saying that discussing the possibility that the U.S. dollar might one day go to a cashless might destroy the confidence in holding U.S. dollar (because of certain benefits of physical currency). And further, if all or at least a majority black market or illegal uses of any other national currency were eliminated though greater technological control of that currency, what impact would it have on their currency or economy for that matter?
According to The OECD its mission is to:
"[…] help governments achieve sustainable economic growth and employment and rising standards of living in member countries while maintaining financial stability, so contributing to the development of the world economy. Its founding Convention also calls on the OECD to assist sound economic expansion in member countries and other countries in the process of economic development, and to contribute to growth in world trade on a multilateral, non-discriminatory basis."
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An unclassified document published as an “Issues Paper” entitled “Refining Regulation To Enable Major Innovations In Financial Market” was prepared by Dr. Sean Ennis, a Senior Economist in the OECD’s Competition Division on behalf of the Secretariat (for the 60th meeting of Working Party […]