From blockchain to digital currencies: The evolving ‘fintech for government’ agenda

By on 23/06/2024 | Updated on 21/06/2024
Global Government Fintech Lab 2024

An expert panel discussed the key fintech-related topics facing public authorities – and set them in a wider context – during a recent Global Government Forum fintech event.

Financial technology is creating a growing number of opportunities, and also challenges, for public sector authorities worldwide.

A session at the Global Government Forum Fintech Lab – ‘Frontiers of fintech (and beyond)’ – invited a three-strong panel to give their views on nine key topics: access to capital, AI, blockchain, cryptocurrencies, digital currencies (including central bank digital currencies – CBDCs), digital ID, digital inclusion, green fintech and open data/ ‘smart data’.

The trio were invited to choose from the menu or identify further topics that merited greater prominence.

‘Systems thinking’

Mai Santamaria, principal – shareholding and financial advisory division in Ireland’s Department of Finance, opened by pointing out that some topics such as blockchain, CBDCs and crypto overlap and identifying one cross-cutting theme – ‘trust’. “Trust will impact your CBDCs, digital ID, digital inclusion and open data even – on how it’s used,” she said.

Governments typically “don’t understand enough” how society values trust and how it is “anchored in society”, she said – an often-underestimated consideration as ultimately it drives the behaviour of citizens and “should definitely inform” delivery choices for fintech-powered services, and more broadly.

She made an analogy to the growth in use of electric cars, saying that implementation would involve public awareness and infrastructure. “We are talking here [at the Lab] about fintech and about digital and it’s a bit like talking about electric cars, and then you walk outside and there’s nowhere to plug it in to charge it,” she said. “We can’t be talking about any of that without actually knowing we have those data centres, cloud providers and all that kind of stuff. Unless there’s a lot more ‘systems thinking’ – and we’re putting that all together – all our best intentions when it comes to fintech and actually applying those technology changes to other products as a government, where are they going to go?”.

Asked about blockchain’s potential, she described its use for public services as “tricky”. She referred to the possibility in a select few jurisdictions globally of paying tax using cryptocurrency, saying that the “element of openness” involved in types of blockchain can “seem counterintuitive” to public service delivery and use – for example, people’s tax affairs.

It depends, of course, on the type of blockchain and whether it is public or private. She highlighted the use of smart contracts (blockchain-based digital contracts that are automatically executed when pre-determined terms and conditions are met) as an attractive area. “So, there are possible elements to blockchain that I think would be used more than just saying the technology overall we should use for public services,” she said.

Read more: Ireland hosts public sector pioneers in Dublin for third Fintech Lab

Blockchain’s ‘billionaire’ potential

Parma Bains, financial sector expert in the International Monetary Fund’s monetary and capital markets department, was keen to jump in on blockchain’s possibilities, saying that things that can be done using blockchain can also be done on conventional platforms (so often blockchains are unnecessary).  

“So, things like programmable payments – that’s just conditional programming logic that you can do that without the block: we can do that anyway. Programmable money is something different (and potentially something darker as well) but it exists.”

“Why does blockchain exist, at least in the form that it exists in now?,” he continued. “It exists to solve the double-spend problem, or to put in a simpler way, it just creates trust in a trustless environment – that’s what it is.

“You’ve got to ask the question: in what use-case is having data (broadly or narrowly distributed, depending on if it’s public or private), and the ability to act on that data (whether it’s permissioned or permissionless), where would that be helpful? Where would it be helpful where data is dispersed and you need to verify and validate it, everyone needs to have access to that data [and] they can see that data in real time?”.

“It is useful somewhere – and the person who answers that question is going to become a billionaire,” he added.

Cybersecurity and tokenisation

Mari-Liis Kukk, head of the Estonian Financial Supervision and Resolution Authority’s innovation department, kicked off by saying that cybersecurity “definitely” deserved a mention as a crucial topic, before highlighting a headline-grabbing initiative detailed last year by the Bank for International Settlements (BIS).  

The Switzerland-headquartered institution published a ‘blueprint’ for a new type of financial infrastructure – a ‘unified ledger’ – in a special chapter of its annual economic report for 2023.

The infrastructure would combine tokenised forms of CBDC with tokenised bank deposits and other tokenised claims on a programmable platform.

Describing the global monetary system as “standing at the cusp of another major leap”, the BIS stated that “following dematerialisation and digitalisation, the key development is tokenisation – the process of representing claims digitally on a programmable platform”.

The unified ledger proposal did not refer to blockchain, Kukk pointed out. “This ‘unified ledger’ is still a concept and consists [of] a lot more than just the technology behind it,” she said.

Picking up on these comments, Bains pointed out: “Just because something is technically feasible, doesn’t make it commercially viable,” adding that “we come across that a lot, especially in the fintech space”.

Read more: Massachusetts municipality issues bond via blockchain in US public sector first

Crypto and data

Regarding crypto, Bains described “a lot of movement in the past 12 months” around new recommendations and rules from bodies such as the Financial Stability Board, Basel Committee on Banking Supervision and International Organization of Securities Commissions (IOSCO).

On the topic of data, he emphasised the importance of good regulation to ensure trust among consumers. “We want data to flow through an economy as frictionlessly as possible, but it’s important to create some friction because regulation is a cornerstone of a well-functioning market. It’s not an inhibitor.”

Data protection frameworks, he pointed out, are “not a given in many countries” and, where they exist, are “not always that robust”. “Once you have that baseline, on top of that you can build data portability – like open banking [and] open finance,” he said.

But then, he noted, engagement incentives need to be clear. “For me, the way that we’re interacting with the digital economy is very different to the way that we interact with each other now because in the digital world, there is no privacy. So, the question is: how do you create confidence to allow actors to share their data in a meaningful manner while ensuring that there is privacy?”. He spoke of “exciting” research in this field, saying that ‘privacy-enhancing technologies’ were promising.

‘Bloodline to fintech’

An audience member asked about digital resilience and whether systems were at risk of a ‘single point of failure’ and whether that could ‘bring down the system’.

Santamaria referred back to her opening remarks about systems thinking. “It’s great to look at the technologies but we have to think from a public service and government perspective. Our citizens are not thinking about this because, instinctively, they’re relying on us [government] to be looking at this.”

Major infrastructure is the “bloodline to fintech, to all services”, she said.

On this note she echoed Kukk’s point about the crucial importance of cybersecurity. “Risks really go hand in hand with fintech,” she said.

Fintech’s dynamic landscape

The three panellists offered an overarching perspective on the multifaceted and dynamic ‘fintech for government’ landscape.

Santamaria’s emphasis on systems thinking, Bains’ observations about data privacy in the context of trust and Kukk’s focus on possibilities for the global financial system combined to round off the 2024 Lab with ‘big picture’ considerations.

Their comments also served to highlight the importance of regulation, including global standards and recommendations, as public authorities weigh up the extent to which they could and should explore fintech’s possibilities.

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About Nancy Johnson

Nancy Johnson is an international politics student at City University of London who is working with the Global Government Forum as an editorial and events intern. She has a keen interest in global politics and government, and has previously spent time as an intern at the Afghanistan and Central Asian Association (ACAA), in political communications.

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