Global Financial Infrastructure Research Articles

Xylem: An Energy-Efficient, Globally-Redistributive, Financial Infrastructure using Proof-by-Location

The Proof-of-Work algorithm that underlies Bitcoin, Ethereum w 1 and many other cryptocurrencies is well known for its energy-intensive requirements. The Proof-of-Stake algorithm that underlies Ethereum and various other cryptocurrencies is less impactful environmentally, but it has a second, looming issue: the problem of wealth inequality. We have developed an alternative to Proof-of-Work and Proof-of-Stake, called Proof-by-Location, that has the potential to address both of these issues. This paper describes Proof-by-Location and a financial platform called Xylem that is based on it. This platform seeks to distribute transaction fees to billions of cryptocurrency “Notaries” around the world (essentially, anyone with a smartphone), who work together to establish a distributed consensus about financial transactions. In this paper, we demonstrate that this platform can scale to more than 3.9 trillion transactions per year (more than triple the number of digital payments per year currently occurring). We show a reduction of electricity usage per transaction of 99.9999914% compared to Bitcoin, 99.999905% compared to Ethereum w , 99.83% compared to Ethereum, and 95.9% compared to the Visa financial services company. We demonstrate that this platform would have a redistributive rather than consolidatory effect on wealth compared to any of these platforms, leading to a source of income for more than 1 billion people around the world, including more than 110 million in the bottom 10-20th percentile by income, with income for that group equivalent to 8.8 million full-time jobs. Finally, this currency provides a positive, non-compulsory mechanism for shaping human habitation patterns in ways that can slow global biodiversity loss and enable ecological restoration. Using Xylem as a global financial infrastructure could lead to significantly better social and environmental outcomes than existing financial platforms.

The Financial Millennium

As a financial technology with a millenarian attitude, cryptocurrencies were bound to produce their own heretics and schismatics. Communicating over Telegram channels, conference calls, symbol-laden images, and multi-hour YouTube videos, believers assert that Bitcoin and Ethereum are the exoteric forms of the hidden “chosen one”: XRP, a prominent but not industry-leading cryptocoin. For those who believe, XRP is one component of a total economic and social transformation under a set of secret laws about to be revealed. Elites will be brought low, believers will become rich, global financial infrastructure will be rebased in a jubilee, and miraculous technologies and beings will be disclosed. For many theorists, this monetary apocalypse is part of an explicitly Christian apocalyptic event. In this article, I draw on archives across a variety of formats to explain the evolution of an apocalyptic crypto sect and use these archives to reflect on the context and future of religious imaginaries in the blockchain space.

Long-term business implications of Russia’s war in Ukraine

Following its invasion of Ukraine, Russia’s macroeconomic stability will worsen; foreign trade and Russia-bound investment will dry up; and human capital will become scarce. Russia will not fully compensate these losses with increased economic engagement with China, with particular deficiencies likely in high-tech areas for Russia. Import substitution is also unlikely to allow Russia to innovate its way out of economic isolation or escape the resource curse. As Kremlin-connected elites further dominate the impoverished economy, crony state capitalism and kleptocracy will rise. The global repercussions of Russia’s war will include commodity shocks and the attendant supply chain disruptions and inflationary pressures. In terms of FDI, the global industries in energy, auto, and consumer goods will be particularly affected. The loss of the Russian market will be less critical to sales revenues. Structurally, Russia’s forced decoupling from the global economy may lead to the fragmentation of global financial infrastructure and the formation of economically contained blocks.

CROSS-BORDER INTERBANK PAYMENT SYSTEM (CIPS) И ЕЕ РОЛЬ В ПРОЦЕССЕ ИНТЕРНАЦИОНАЛИЗАЦИИ НАЦИОНАЛЬНОЙ ВАЛЮТНОЙ СИСТЕМЫ ЮАНЯ

Since the beginning of the global financial crisis of 2008-2009, which highlighted the weakness of the international monetary system due to its complete dependence on the US dollar as the main world currency, the leadership of the People’s Republic of China, like many other states, felt its dependence and, taking advantage of the situation, used the full potential of opportunities and efforts to raise the status of the yuan to the level of the international reserve currency currencies and put an end to the dominance of the dollar. The PRC’s efforts were aimed at promoting the yuan in international payments, creating its own global financial infrastructure and networks in yuan and reforming the international monetary system. The creation of China’s own cross-border interbank payment system (CIPS) has become an integral part of building a global financial infrastructure in yuan. Combined with other anti-crisis measures to internationalize the yuan, CIPS helped achieve a sharp increase in the use of the yuan as an international payment currency in less than two years after the system was fully launched in 2018. CIPS is designed in the likeness of the existing market-leading payment systems CHIPS and SWIFT, uses their operational functions that are deeply embedded in the global financial system. Based on key literature in English and Chinese, assessing historical precedents and economic data, the authors try to assess the role of the CIPS system and the yuan in international foreign exchange reserves and payments, the problems of finding global recognition and prospects for improving the supranational use of the Chinese currency

Military and Political Influence on the Portfolio of Global Reserve Currencies

This paper analyses a new concept presented in the works of B. Eichengreen, A.J. Mehl, L. Chitu “Mars or Mercury? The Geopolitics of International Currency Choice”, according to which the state’s possession of nuclear weapons is linked to its possession of reserve currency. The paper aims to provide a detailed assessment of how gaining reserve currency status depends on the military and political potential of the state issuer. The research method is an analysis of the historical material and the current state of the issue under discussion. The study shows the relationship between the global military and political leadership and control over the global financial infrastructure, which increases its importance as a space for interstate conflicts. It has been proven that neither the presence of military power nor the ability and willingness to provide partners with security guarantees do not predetermine the acquisition of the reserve status by the national currency. This status is acquired as a result of control over global investment processes, in the implementation of which military power plays a significant, but not exclusive role. This power, as the potential for economic and financial dominance, is a derivative of the scale and level of development of the national economy, with a key factor in its deep involvement in international trade. From the point of view of practical forecasting of economic, military and political development, the authors conclude that in the foreseeable future, despite the strengthening of its military potential, the PRC will not be able and, most likely, will not try to obtain the status of the yuan as a reserve currency. The United States, in turn, will increasingly use its dominance in the capital market and control over the global financial infrastructure as a tool to maintain global leadership. Further study of the considered issues will significantly increase the efficiency of forecasting economic processes in relation to the military and political situation.

Disentangling derivatives: international policy reforms concerning central counterparties

ABSTRACT After the 2008 financial crisis, international policy reforms were adopted on various aspects of derivatives markets, highlighting the need for precise and consistent rules. We examine the making of international rules concerning the resilience, recovery and resolution of central counterparties (CCPs), which form acritical global financial infrastructure. We argue that regulators played an important role in setting relatively precise and consistent international standards on CCPs over time. Facing common challenges, such as market fragmentation and interlinkages between issues, fostered a problem-solving approach in transgovernmental networks. We also identify the policy coordination tools used by regulators.

Current development trends in global financial architecture: fintech, digital technologies and cryptocurrencies

The article discusses the main trends in the transformation of the global financial infrastructure. Structural changes in the global banking system, the emergence of cryptocurrencies, crypto banks, and the development of fintech and digital technologies are analyzed.

ГЛОБАЛЬНІ ФОНДОВІ БІРЖІ: ЧИННИКИ ТА ТЕНДЕНЦІЇ РОЗВИТКУ

The article examines the factors and development trends of global stock exchanges in modern conditions. The essence of the category “global stock exchange” is analyzed and its author’s definition is provided. Global stock exchanges are defined as the organizer of exchange trading, which unites trading platforms and other financial institutions of two or more continents. The main ways of competitive restrictions overcoming for modern stock exchanges are revealed: universalization; expansion of geographical presence through the opening of subsidiaries; cooperation and unification of efforts of different financial institutions on the basis of cooperation of different sectors representatives of the financial market; formation of new institutions by combining existing ones belonging to different segments of the financial market on the basis of model, functions, territories, etc. (financial conglomerates). The criteria by which global stock exchanges differ from international financial centers are formulated. The most important of them in descending order of importance are: stock trading platforms belonging to two or more continents; trades of the maximum possible range of financial instruments; international shareholders; subordination to two or more stock market regulators; availability of several headquarters; achieving the highest market capitalization in the region. The problems faced by participants in the securities market on the way to the formation of global stock exchanges are analyzed: unification of local legislation requirements and creation of uniform regulatory standards and standards of exchange disclosure of information, differences of institutional processes of the stock market formation, stability and efficiency of newly created global stock exchanges. It was determined that stock exchanges are important participants in the global financial space – global corporations whose main activities are to provide, manage and control large segments of the global financial infrastructure: from market data and indices to the creation and trading facilitation of financial products.

Global financial architecture: possible directions of structural transformation

The article examines the main trends in the transformation of the global financial infrastructure. The influence of shadow banking and the bubble of derivatives on the development of the world capital market and the stock market is investigated. Possible options for reforming international financial institutions and financial regulators are proposed.

GLOBAL ACCOUNTING REGULATION: IMPACT OF IFAC ON FINANCIAL REPORTING QUALITY

This paper provides an analysis of various dimensions of accounting and corporate governance that have led to the currently troubling state of affairs in the financial reporting environment. Good Corporate Governance (GCG) is a mandatory requirement in today’s corporate world by every stakeholder groups. Failure of giant corporate groups in the last twothree decades strengthens the demand further. And surprisingly, in some of such failures, accounting as a discipline is held liable. The way accounting is practiced or the interpretations that may give different prescriptions in similar situations are some dark areas that may open some scope for the corrupted accountants. The paper covers the concept of corporate governance, its legal framework, its current status and how accounting may be practiced to protect corporates from corruption by establishing governance. The paper analyzes how IFAC is succeeding as an international standard setter with an established place in the global financial infrastructure and it reveals a growing reliance on governance by experts together with a growth in influence of the large, multinational accounting firms. Until corporate boards are truly independent of corporate management and are knowledgeable enough to act as effective shareholder advocates, changes in accounting will be of limited impact.

Accountancy Performance and Achievement (Accountancy Development Index), Case of Albania

The transparency and quality of audits performed by professional accountants and auditors are of crucial importance for the functioning of the global financial infrastructure. Over de last decade, more and more auditors were confronted with the globalization of their clients and became so-called group auditors responsible for the overall quality of the audit engagement even if other auditors in other jurisdictions may be involved. It goes without saying that auditors around the globe do not work in the same environment, do not have to comply with the same rules and regulations and do not have the same level of education before they can apply for an audit license. The qualification, education, training and experience of professional accountants and auditors are of crucial importance for the functioning of the global financial infrastructure. A wide range of stakeholders, including regulators and standard setters, professional accountancy organizations and accountancy firms as well as issuers of financial reports and users of accounting services depend on their professional expertise. The Evaluation of the situation of accountancy education with its components of qualification, education and training in selected countries and Ballcan compared with the requirements of the IES. The status of accountancy education with its components of qualification, education and training in Albania (Accountancy Development Index). The (ADI) illustrates how adoption and implementation of international standards can be visualized for all pillars of the global financial infrastructure and how separate pillar scores can be used to clarify results at the sub-pillar or milestone level.

Revisiting the Firm, Reporting Entity, and Going Concern Concepts in Light of Financial Crisis

ABSTRACT Contemporary accounting conceptual frameworks depict reporting entities as self-evident stand-alone units whose current activities are likely to continue. That representation is revisited in light of Veblen's (1904) sabotage thesis that managers routinely utilize mechanisms that disrupt underlying markets. Credit default swaps played a significant role in the 2008 subprime financial crisis, blurring the boundaries of entities to create entanglements that threatened the global financial infrastructure. The reporting entity and going concern concepts developed in a climate of philosophical pragmatism operating from a flawed premise that a scientific approach assures objective, value-free data. The conventional treatment of reporting entities is contrasted with emerging conversations that paint “the firm” as a legal fiction functioning within a dynamic and potentially unstable matrix. The paper argues that a distorted view on the underlying nature of the firm masks significant public interest issues, making it difficult to address problems inherent in interdependent institutional structures.

Banking on Blockchain: Costs Savings Thanks to the Blockchain Technology

This paper looks at the challenges and opportunities of implementing blockchain technology across banking, providing food for thought about the potentialities of this disruptive technology. The blockchain technology can optimize the global financial infrastructure, achieving sustainable development, using more efficient systems than at present. In fact, many banks are currently focusing on blockchain technology to promote economic growth and accelerate the development of green technologies. In order to understand the potential of blockchain technology to support the financial system, we studied the actual performance of the Bitcoin system, also highlighting its major limitations, such as the significant energy consumption due to the high computing power required, and the high cost of hardware. We estimated the electrical power and the hash rate of the Bitcoin network, over time, and, in order to evaluate the efficiency of the Bitcoin system in its actual operation, we defined three quantities: “economic efficiency”, “operational efficiency”, and “efficient service”. The obtained results show that by overcoming the disadvantages of the Bitcoin system, and therefore of blockchain technology, we could be able to handle financial processes in a more efficient way than under the current system.

Characteristics of Accountancy Education

The framework and development of International Education Standards (IES), attention is given to both the content of the IES, moving from guidelines to standards and to the process of their establishment by the International Accountancy Education Standards Board (IAESB). As in all sectors of the global financial infrastructure, benchmarks for accountancy education in countries with very different characteristics have become increasingly important. The IES establish the necessary elements of pre-qualification and post-qualification education and training. Conceptual subjects are covered in a Framework for IES with the objectives of the IES, the mission and strategy of the IAESB, the consultative process and, not in the least, the nature, scope and authority of the IES. The roles of learning, education, on-the-job training and off-the-job training are considered. The Framework and the strategic plan of the IAESB both point to the objective of the IES being ultimately being accepted by governments, regulators, academics, accountancy practices and the public. Over the last decade the IES have become increasingly accepted as benchmarks for good practice. The competency framework distinguishes three major areas: general country characteristics, standards for accountancy education, and competency pillars for accountants and auditors. The use of the competency framework makes it possible to present country results in a comparable format that can be used for analysis and evaluation. IES have been used as benchmarks for accountancy education on a country level. Higher level requirements of the IES are discussed, as well as the principles of the benchmarking methodology. Classification criteria for the selection of countries are considered.

ІННОВАЦІЇ В ГЛОБАЛЬНІЙ ЦИФРОВІЙ ФІНАНСОВІЙ СФЕРІ: ОЦІНКА ТРАНСФОРМАЦІЙ

The main trends and prerequisites for the transformation of the world market of innovative financial services are determined. The preconditions for the formation of qualitatively new elements of the global financial infrastructure of the digital economy, as well as the current state and forecasts of expanding the range of innovative electronic and mobile financial products are identified. Electronic financial innovation is today an urgent issue that requires careful study, development, analysis and further application in practice with the aim of improving the financial sector of the global digital economy. Developed some proposals and directions of the strategic priorities of innovative development of the market of financial services of Ukraine in the conditions of integration into world .

Leadership, Engagement, and Initiative

“We remain committed to lead efforts to improve global financial infrastructure, and together with you, our combined efforts will help make the world a better place for savers, investors, and our stakeholders.”

Globalization, Exchange Rate Regimes and Financial Contagion

Recent financial and economic crisis and, especially, crisis in the Euro zone, brought to the fore important issues concerning European and global financial infrastructure. Among them are: what is the proper level of financial integration and what are the optimal exchange rate arrangements between countries that are part of tightly knit financial networks. To make informed policy decisions in that regard, it is important to better understand how different levels of financial interconnectedness and different exchange rate regimes jointly influence stability of financial networks. This is the subject of our paper. We study fragility of financial networks operating in a multi-currency world in the context of a two-country multi-region connected network model a la Allen and Gale (Journal of Political Economy, 2000) with open-economy monetary features of Chang and Velasco (Journal of Economic Theory, 2000). We show that the effects of increased financial interconnectedness and different exchange rate regimes on financial stability should not be studied in isolation from one another. In particular, whether an increase in financial interconnectedness reduces or increases financial fragility depends, among other factors, on the exchange rate regime between countries. In addition, change in the exchange rate regime in one part of the network has very different repercussions on stability of the network depending on the degree of network interconnectedness. In particular, a switch from fixed to flexible exchange rate regime increases financial fragility of multi-currency networks under a complete system of financial links. On the other hand, an increase in financial interconnectedness reduces fragility under monetary union and fear of floating regime, but not necessarily under the flexible rate regime. To the best of our knowledge, this is the first theoretical contribution that analyzes joint impact of different degrees of network interconnectedness and exchange rate regimes on stability of multinational financial networks.

PHARMA SUPPLIERS BRACE FOR DOWNTURN

WITH THE GLOBAL financial infrastructure collapsing around them, executives at CPhI, the annual European fine chemicals conference, were watching out for damage to their pharmaceutical industry customers. Of particular concern in Frankfurt at last week’s meeting was the stability of cash-hungry biotech companies. Companies serving the drug industry typically consider their business to be recession-proof. Yet attendees at CPhI noted that this particular crisis (see page 7) is coinciding with a challenging time for big pharma firms. Their discovery engines have stalled, and several key drugs will lose patent protection in the next two years. Some CPhI attendees said their pharma customers are becoming more frugal with research dollars. Although these customers are also outsourcing more of their manufacturing, the overall drug pipeline is drying up. News that Pfizer has cut research programs and GlaxoSmithKline is slashing research jobs only added to the uncertain mood at the trade show (see below). “Over th...

In pursuit of global regulation

PurposeIFAC, a Swiss‐registered non‐governmental organization, is emerging as an important international (auditing) standard setter amongst a powerful group of regulators, including the World Bank, the International Organisation of Securities Commissions (IOSCO) and the European Commission (EC). The purpose of this paper is to focus on the changing governance and accountability structures within IFAC, the way such changes are shaping, or re‐shaping, its “public interest” commitments and the resulting strategic implications for processes of auditor regulation and public oversight in the global financial arena.Design/methodology/approachThe material and analysis presented in the paper derives from an extensive review of official reports, consultation documents and related responses, a range of other information available on IFAC's web site (www.ifac.org) or those of other key regulatory players in the global financial arena.FindingsThe paper analyzes how IFAC is succeeding as an international standard setter with an established place in the global financial infrastructure. From analysis of the recent establishment of a Public Interest Oversight Board (PIOB) and the changing nature of representation on IFAC's Public Interest Activity Committees (PIACs), the paper reveals a growing reliance on governance by experts together with a growth in influence of the large, multinational accounting firms. Governance of auditors has become a matter of global importance and governance structures are being reconfigured.Practical implicationsBy highlighting the changes that have taken place within IFAC's governance system, the paper establishes the importance for public policy of further study and debate concerning the nature and practical operation of such a system, particularly given IFAC's position within a complex but developing global governance arena.Originality/valueIFAC is becoming an integral player in global financial governance processes and yet has not been subject to any substantial academic accounting research. This paper seeks to rectify this by focusing on the structures and processes underpinning both the development of IFAC's International Standards on Auditing (ISAs) and its own global strategy for advancement.

Reforming East Asia for Sustainable Development

This article reviews the challenges faced by four East Asian economies in the wake of the currency and financial crises of 1997–98. Perceptions and opinions of East Asian economic development moved swiftly from commendation to condemnation, revealing a simplistic response to an experience that was seen to have challenged the neo-liberal orthodoxy. As such, government–business relationships and corporate governance have received particular attention and criticism. However, recovery is now recognized to have been facilitated by reflationary Keynesian policies, rather than the draconian IMF-prescribed programmes or ‘reform’ of corporate governance. Indeed, there is growing attention to, and concern with, the consequences and appropriateness of ongoing Anglo-American inspired financial liberalization. The regional slowdown of foreign direct investment, slowness of technological progress, and changes in investment policy present considerable challenges for ASEAN economies in particular. This article concludes that while liberalization of the global financial infrastructure continues, convergence of economic arrangements is not necessarily inevitable, and indeed, that an eclectic mix of policies and institutions is not only possible, but preferable.