A policy-makers toolkit for state-backed digital currencies: do we need this?

Since the 2008 global financial crisis, the financial regulation scenario faces new drivers and challenges.  Bank transactions by internet and mobile banking have sharply increased. In this digital environment, new technologies – such as advanced analytics, big data, in addition to the use of robotics, artificial intelligence, new forms of encryption and biometrics – have been enabling changes in the provision of financial products and services. The current wave of financial innovations is being increasingly oriented to more friendly digital channels through apps in the context of mobile banking strategies that privilege the development of open banking and further interactions with social media

Indeed, the increasing digitalization of financial transactions is also related to changes in the banks’ competitive environment, where the intense growth of the start-ups called fintechs, especially since 2010, has revealed a new articulation between finance and technology. Such fintechs are companies organized as digital platforms with business models focused on costumer relationship in the areas of payment systems, insurance, financial consultancy and management, besides virtual coins. Among other initiatives, we can highlight the crypto fintech products, such as a consumer app for the Bakkt, the Bitcoin futures contracts exchange run by the Intercontinental Exchange.

In this digital environment, new technologies – such as advanced analytics, blockchain and big data, in addition to the use of robotics, artificial intelligence, besides new forms of encryption and biometrics – have been enabling changes in the provision of financial products and services that are challenging current central banks’ patterns of policy and regulation.

The transformations provoked by these start-ups in the financial markets have raised a relevant discussion about the impacts of recent technological innovations on the financial regulation agenda – mainly focused on the Basel Accords- and the future of the world system of currencies. The intense changes are settling new questions for regulators, such as:

• How to regulate fintechs’ activities of financial management that collect, treat and custody information from users?
• How to regulate the credit markets since start-ups (non-banks) are developing electronic platforms to sell loans?

Taking into account the global changes in the provision of financial products and services, central banks have closely also followed the recent expansion of crypto currencies (Tapscott and Tapscoot, 2018). Moreover, the World Economic Forum (WEF) launched a project on central bank digital currencies led by Ashley Lannquist. Over a dozen central banks, financial institutions, academics, and other international organizations have been consulted to create a WEF kit that includes worksheets, information guides, and analysis project. Indeed, central banks’ interest in state-backed digital currencies already exists, and some state-backed digital currencies exist, such as Senegal’s CFA Franc) and the Venezuelan Petro. On the horizon there are also other initiatives, like China’s own digital yuan. Moreover, the Bank of Thailand announced it had completed trials with Hong Kong for a prototype.

So far, it seems like the competition scenario of crypto currencies already includes central banks. Banks, fintechs and central banks are issuing different currencies that  this leaves the way open to a market competition process where different digital currencies would be traded at variable exchange rates. In this respect, it is interesting to remember that Hayek, in his book the Denationalisation of Money (1976) highlighted that, in the context of free competition in the currency market, the marginal costs of producing and issuing a currency would be close to zero and the nominal rate of interest would also be driven (close) to zero.

The global monetary and financial scenario is getting more complex. Considering the evolution of this free market monetary regime scenario, some questions should be addressed to students of economics:

• Which should be the scope of the central banks and of other financial regulators when considering the growth of crypto currencies and fintechs?
• What would be the main consequences of free competition and profit maximisation on both monetary and financial markets?
• Which currencies (digital or not) would survive? Only those currencies that have a stable purchasing power would survive?
• Do central banks need this policy-makers toolkit for state-backed digital currencies? Why?

Moreover, What is at stake?  In short,  central banks  turn out to be competitors. The current frontier of financialisation is leaving the way open for a global and comprehensive privatisation of money. Indeed, the conceptulaizaiton of money as a public good is being challenged.

 

 

Making Economics Relevant

This post was written by Carmelo Ferlito.  He is a senior fellow at the Institute for Democracy and Economic Affairs (IDEAS)

 

I taught economics in Malaysia for seven years. My students were mainly second and third year university students who attended my economics classes (microeconomic theory and policy and history of economic thought) after having already learnt the basic notions of macro and microeconomics.

Most of my students were double majoring in economics and finance. My impression is that, in general, they could see the relevance of finance in their daily lives (it can help in making or saving money) while they struggled to get enthusiastic about economics, which instead was perceived as a set of abstract graphs and formulas, somehow alien from real people’s lives.

Students’ cold relationship with the subject goes hand in hand with the growing disillusionment with the discipline that followed the global financial crisis in 2007 and the apparent inability of economists to see it coming and to deal with it afterwards.

I cannot deny that when I was a student, I was caught in the same trap. While it was not difficult to grasp the general meaning of the basic economics concepts, the development of the discipline appeared to me to be unrealistic, too abstract and, therefore, useless for understanding reality and not interesting enough to build a career on. This is probably one of the reasons why I chose economic history and the history of economic thought as the subjects for my postgraduate studies, rather than economics itself.

A turning point in my scepticism toward the discipline was when I read The Economics of Time and Ignorance by Mario J Rizzo and Gerald O’Driscoll. The book did not reduce my scepticism about economics as it was taught in class, quite the contrary. But the authors showed me that a different economics is possible, with regard to both the contents and to the way it is presented.

The lessons I learnt from Time and Ignorance, together with a deepening of the knowledge of the history of economics, helped me to relativise and contextualise the contents taught during the traditional economics courses. I realised that economics is not simply an evolving discipline, it is subject to a non-linear evolution and different streams of thought coexist like karst river patterns.

The two key words on which I would rebuild the teaching of economics, with the aim of making it relevant and fascinating for students, are realism and pluralism. Realism means, first of all, to help students to understand how economics can say something about most of the aspects of human life, for example, to woo a girl or boy and the patterns of traffic jams can both be explained by sound economics. This does not mean to renounce abstraction, but to choose that level of abstraction that is functional, a powerful explanation of reality rather than the one that tries to subjugate reality to its unrealistic assumptions.

Pluralism in also key. It is important to realise that textbook economics is not the only one. Economics is a rich discipline and to know that a variety of economic schools is not simply a heritage of the past but a living reality is important to confront our own need for an explanation with a variety of paradigms at our disposal. The discipline is not a monolith. An unsatisfactory textbook explanation or assumption does not mean the absolute nonexistence of more satisfactory ones. Students need to be introduced to different paradigms, to be trained to look for contending explanations and to develop a judgment about them.

What went wrong with economics, therefore, is not simply economics itself, but a certain way to develop and present textbook economics. The main flaws of such development are its unrealistic assumptions (for example, to ignore the role of time or the absence of a dynamic explanation for entrepreneurship) and its pretence of being a monolithic truth.

A growing interest in reforming economics education is emerging and I believe that a sound reform needs to be grounded in realism and pluralism, in order to make economics relevant again, interesting, stimulating and vibrant for future generations of scholars.

 

Here is the link of the op-ed: https://www.theedgemarkets.com/article/ideas-making-economics-relevant.

WEA CONFERENCE “GOING DIGITAL”. Deadline extended to 30 October

The advent of digital economy creates new challenges for businesses, workers, and policymakers. Moreover, business prospects for artificial intelligence and machine learning are evolving quickly. These technologies have transforming implications for all industries, businesses of all sizes, and societies. The digitalization of economic activities calls for a deep reflection on the forces that will shape the future of the global economy.

The objective of this conference, led by Prof. Maria Alejandra Madi and Dr. Malgorzata Dereniowska, is to discuss recent contributions to the understanding of digital economy and its consequences for business trends and labour challenges. The conference also focuses on bridging the gap between different economic theoretical approaches and the practical applications of artificial intelligence and machine learning.

The Conference calls for a focused reflection on the benefits and risks of the high-tech revolution is an important element of shaping sustainable business and just labor. Related topics include law, ethics, safety, and governance.

Topics include (but are not limited to):

The gig economy and recent economic theoretical approaches: advances and challenges.
Internet of Things in retrospect and today.
Machine learning: integration of people and machine learning in online systems.
Consumer transactions and Big Analytics.
Time Series Data & Data for Prediction in Economics.
Business Transformations though Internet of Things and Artificial Intelligence.
Impact of artificial intelligence on business and society: automation of jobs and the future of job creation
Artificial intelligence for manufacturing: today and tomorrow.
Disruptive innovation and transforming industries: telecom, finance, and travel/transportation, logistics, etc.
Machine learning and eco-challenges.
E-government, e-democracy and e-justice.
Ethical and legal issues of artificial intelligence technology and its applications.
Digital economy and economic inequality.
The impact of the digital economy on competition and economic growth.
We welcome submissions from scholars working in economics, law, political science, psychology, philosophy, and sociology.

We also welcome contributions from business executives responsible for AI initiatives, heads of innovation, data scientists, data analysts, staticians, AI consultants and service providers, and students.

KEY DATES

Papers submission: October  30th 2019.

Welcome

Discussion Forum: November 11th – December 9th 2019.

CONTACT

Maria Alejandra Madi alejandra_madi@yahoo.com.br

Małgorzata Dereniowska malgorzata.dereniowska@gmail.com

Enhancing Pluralism: 1st Colloquium on Economics Education

To understand economics means to be equipped with the intellectual tools allowing us to appreciate the dynamic and complex nature of the capitalist markets. This understanding can be better acquired through engaging on the importance of pluralism in economic education, and reviewing critical economic issues from alternative perspectives.

The Center for Market Education invites to submit abstracts for the 1st Colloquium on Economics Education which will be held at The Saujana Hotel (www.saujanahotels.com) in Kuala Lumpur, Malaysia, on 10-12 December 2019.

The theme of the conference is Issues in Contemporary Economics Education. Abstracts can deal with the following topics:

1. issues deriving from a standardized economics education and in particular with the unique predominance of the neoclassical paradigm after World War II;
2. the enrichment for students and the academic community that can derive from a pluralistic approach in general and from the contributions that can be delivered by specifics heterodox schools;
3. the importance of economic history and history of economic thought for a sound economic analysis;
4. the importance of epistemological foundations and multidisciplinarity.

The event is planned as a colloquium and not as a traditional academic conference. Abstracts and/or papers will be distributed in advance in order to facilitate an interactive discussion during the colloquium.

Ten papers will be selected for presentation on the basis of the abstracts. Conference participation is free of charge and the  Center for Market Education will cover accommodation (two nights) and meal expenses, while the travel expenses are covered by the participants.

The papers can be submitted after the conference for publication on MarketEdu, the official journal promoted by the Center for Market Education (www.marketedu.ideas.org.my) that is  an academic and educational initiative supported by the Institute for Democracy and Economic Affairs (IDEAS).

The Colloquium is peculiarly designed for: academicians in the field of economics and related social sciences and post-graduate students.

Abstracts can be submitted to carmelo@ideas.org.my before 1 November 2019.

1st Colloquium on Economics Education: enhancing pluralism

 

To understand economics means to be equipped with the intellectual tools allowing us to appreciate the dynamic and complex nature of the capitalist markets. This understanding can be better acquired through engaging on the importance of pluralism in economic education, and reviewing critical economic issues from alternative perspectives.

The Center for Market Education invites to submit abstracts for the 1st Colloquium on Economics Education which will be held at The Saujana Hotel (www.saujanahotels.com) in Kuala Lumpur, Malaysia, on 10-12 December 2019.

The theme of the conference is Issues in Contemporary Economics Education. Abstracts can deal with the following topics:

1. issues deriving from a standardized economics education and in particular with the unique predominance of the neoclassical paradigm after World War II;
2. the enrichment for students and the academic community that can derive from a pluralistic approach in general and from the contributions that can be delivered by specifics heterodox schools;
3. the importance of economic history and history of economic thought for a sound economic analysis;
4. the importance of epistemological foundations and multidisciplinarity.

The event is planned as a colloquium and not as a traditional academic conference. Abstracts and/or papers will be distributed in advance in order to facilitate an interactive discussion during the colloquium.

Ten papers will be selected for presentation on the basis of the abstracts. Conference participation is free of charge and the  Center for Market Education will cover accommodation (two nights) and meal expenses, while the travel expenses are covered by the participants.

The papers can be submitted after the conference for publication on MarketEdu, the official journal promoted by the Center for Market Education (www.marketedu.ideas.org.my) that is  an academic and educational initiative supported by the Institute for Democracy and Economic Affairs (IDEAS).

The Colloquium is peculiarly designed for: academicians in the field of economics and related social sciences and post-graduate students.

Abstracts can be submitted to carmelo@ideas.org.my before 1 November 2019.

What works? Policy design without theory is useless

Against a rationalist top down approach to policy making, the evidence-informed policy and practice has rapidly evolved in the last two decades.

In this line of research, a new book What Works Now? Evidence-informed Policy and Practice has been edited by Annette Boaz, Huw Davies, Alec Fraser and Sandra Nutley.  It offers not only a synthesis of the role of evidence in policy making but also an analysis of its use in recent economic models and practices in the UK, Australia, New Zealand, Scandinavia, Canada and the United States. In addition to the diversity of policy and practice settings where evidence is sought and gets applied, the book considers policy examples related to healthcare, social care, criminal justice, education, environment and international development.. At the core of the argument regarding the actual relevance of ‘know-about’, ‘know-what works’, ‘know-how’, ‘know-who’ and ‘know-why’ is the belief that evidence matters.

Considering this policy scenario, the relevant question at stake is  what are the implications of the new policy design practices that mainly rely on the belief that evidence matters?

What is important to note is that behind the belief that evidence matters is a deep transformation of the public policy approach  towards a more experimental and empirical one.

At this respect, in the UK, the Nudge Unit leader David Halpern recently suggested the conceptualization of experimental government  in order to characterize the new approach to policy making based on evidence. The relevance of the potential outcomes of  systematic testing is clear in Halpern’s words:

Governments, public bodies and businesses regularly make changes to what they do. Sometimes these changes are very extensive, such as when welfare systems are reformed, school curricula are overhauled, or professional guidelines are changed. No doubt those behind the changes think they are for the best. But without systematic testing, this is often little more than an educated guest. To me, this preparedness to make a change affecting millions of people, without testing it is potentially far more unacceptable than the alternative of running trials that affect a small number of people before imposing the change to everyone. 

At the heart of his proposal about “what works best” in public policy is the use of evidence as a regular practice to select the measures that actually operate in a more efficient  way.  Moreover, no  ethical considerations about the efficient methods and goals in policy making are added to his explanation.

Taking into account the methodologies that support some policy practices that favour inductive reasoning and randomized control trials of impact evaluation (RCTs), there is a controversy around the utilization of these attempts to build experimental programmes or policy intervention. For instance, Deaton and Cartwright (2016) pointed out that there are misunderstandings around what the RCTs can really do. For them, the inductive techniques used in research do not guarantee that the relevant causal factors are taken into account across sample groups in any specified RCT. Therefore, the results of the inference pocess might be wrong. Indeed, the outcomes of RCTs can be challenged ex post, after examining the composition of the control group and the factors considered in the experimental setting. Moreover, Deaton and Cartwright also rejected the transportation of the outcoems of RCTs to other contexts since the relations of causality between variables is always context-dependent.

As the decision-making policy process in the real world relies on institutional factors that may be different elsewhere, the methodology based on RCTs does not provide a credible basis for policy making. In short, the outcomes of inductive investigation can never be completely transported across time and space.

Moreover, economists Steven D. Levitt and John A. List (2007) highlighted that human behaviour in RCTs can be affected by the selection of the individuals, the evaluation of their actions by others, and ethical issues. Then, the findings in a laboratory setting may overestimate or underestimate the effectiveness of policy interventions within real life interactions. In other words, if a policy intervention “works” and makes people better off in a laboratory, there is no guarantee that this intervention may actually do so in the real-world.

In fact, the methodology of RCTs runs the risk of considering worthless casual relationships as relevant causalities in the attempt to develop policy recommendations. In short, the use of the outcomes of RCTs as normative orientations for policy making should be put in question.

“What works” in the “sterile” environment of a laboratory does not necessarily work in a real-world where social interactions and the dynamics of institutions are overwhelmed by power relations. Therefore, ethical considerations should be considered in any attemp to  build policy proposals.

Indeed, the transformation of the economic policy approach has evidently been a remarkable one. It is worth recalling the words of Lars Syll about the current sad state of economics as a science,

A science that doesn’t self-reflect and asks important methodological and science-theoretical questions about the own activity, is a science in dire straits. The main reason why mainstream economics has increasingly become more and more useless as a public policy instrument is to be found in its perverted view on the value of methodology.

 

 

References
Boaz, A, Davies, H., Fraser, A and Nutley, S. (eds) What Works Now? Evidence-informed Policy and Practice.. Policy Press. 2019.,
Deaton, A. and Cartwright, N. (2016). Understanding and misunderstanding randomized controlled trials. NBER Working Paper No. 22595.
Halpern, D. (2015). Inside the Nudge Unit: How Small Changes Can Make a Big Difference. London: WH Allen.
Levitt, S. D. and List, J. A. (2007). What do laboratory experiments measuring social preferences reveal about the real world? Journal of Economic Perspectives, 21 (2): 153–174.
Madi, M.A.C (2019). The Dark side of Nudges. London: Routledge.
Sill, L. (2019=. Economics becomes more precise and rigorous — and totally useless
April 4. https://rwer.wordpress.com/2019/04/04/economics-becomes-more-precise-and-rigorous-and-totally-useless/

GOING DIGITAL. The next WEA Conference

The advent of digital economy creates new challenges for businesses, workers, and policymakers. Moreover, business prospects for artificial intelligence and machine learning are evolving quickly. These technologies have transforming implications for all industries, businesses of all sizes, and societies. The digitalization of economic activities calls for a deep reflection on the forces that will shape the future of the global economy.

The objective of this conference, led by Prof. Maria Alejandra Madi and Dr. Malgorzata Dereniowska, is to discuss recent contributions to the understanding of digital economy and its consequences for business trends and labour challenges. The conference also focuses on bridging the gap between different economic theoretical approaches and the practical applications of artificial intelligence and machine learning.

The Conference calls for a focused reflection on the benefits and risks of the high-tech revolution is an important element of shaping sustainable business and just labor. Related topics include law, ethics, safety, and governance.

Topics include (but are not limited to):

1. The gig economy and recent economic theoretical approaches: advances and challenges.
2. Internet of Things in retrospect and today.
3. Machine learning: integration of people and machine learning in online systems.
4. Consumer transactions and Big Analytics.
5. Time Series Data & Data for Prediction in Economics.
6. Business Transformations though Internet of Things and Artificial Intelligence.
7. Impact of artificial intelligence on business and society: automation of jobs and the future of job creation
8. Artificial intelligence for manufacturing: today and tomorrow.
9. Disruptive innovation and transforming industries: telecom, finance, and travel/transportation, logistics, etc.
10. Machine learning and eco-challenges.
11. E-government, e-democracy and e-justice.
12. Ethical and legal issues of artificial intelligence technology and its applications.
13. Digital economy and economic inequality.
14. The impact of the digital economy on competition and economic growth.

We welcome submissions from scholars working in economics, law, political science, psychology, philosophy, and sociology.

We also welcome contributions from business executives responsible for AI initiatives, heads of innovation, data scientists, data analysts, staticians, AI consultants and service providers, and students.

 

KEY DATES

Papers submission: October 20^th 2019.

Welcome

Discussion Forum: November 11^th – December 9^th 2019.

 

CONTACT

Maria Alejandra Madi alejandra_madi@yahoo.com.br

Małgorzata Dereniowska malgorzata.dereniowska@gmail.com