Tag Archives: Brink – The Edge of Risk

Governance Remains ​a ​Key Imperative ​as Blockchain Evolves

This is the final piece in a five-part series on the business impact of blockchain technology.

To wrap up blockchain week, BRINK had a conversation with Joanna Hubbard, CEO of Electron, a London-based blockchain startup, about the role of government in blockchain, the opportunities it presents for new business models to flourish, and the risks associated with the technology. This Q&A has been edited for length and clarity.

BRINK: How has blockchain continued the trend toward decentralized power sources, which was already underway even before blockchain appeared on the scene?

Joanna Hubbard: I don’t think blockchain is changing decentralization—the cat was out of the bag already. I think what it’s doing, or what it’s capable of doing, is creating a new coordinating architecture that allows you to actually engage really small assets as a kind of safe central course. You can essentially coordinate all of your trading interests on the platform so that everyone trusts that they’re going to get from the market what they want from the market. I think what blockchain will enable us to develop is that kind of market trustee. You bring enough equality and different types of assets and products into a market, and you essentially trust the really diverse set of assets and the set of requirements designed to help balance the kind of increasingly intermittent overall system.

BRINK: What’s the role of government in the energy sector as it relates to blockchain?

Hubbard: I’m going to be really unpopular in saying this, but I think blockchain is a fantastic source of governance. I think that government will be involved in setting the essential basic rules and parameters of the systems and evolving those rules. A lot of the rules are going to be around data validity: what kind of license do you need to be paid at, what data sets can you see, how much of a system can you interact with? I think governments are going to be key in answering those questions.

Because energy is a local market product, different governments and different regions are going to have different rules. These different programs on the system create a kind of transparency of who’s going to be expected to trade and on what basis—and that gives rise to a business world with a much more efficient market structure.

You can mitigate a lot of the classic risks around hacking through running a consortium blockchain with visibility, transparency and data.

BRINK: But doesn’t blockchain bypass the role of government, as it were? Does government still need to play a role in this?

Hubbard: Absolutely, in the end it does. If we’re talking about consortium blockchains, that means that you have to be commissioned to participate, and even then you have to be commissioned under full sanctions. So governments are creating rules around, for example, how much price risk the customer can be exposed to. So if someone wants to change their trade, they might not want to turn their electric power off and find that they got charged 1,000 pounds for half an hour of electricity. They need protection, and that will be a role specific to government and built in to the trading consortium blockchain.

BRINK: Right. But wouldn’t they need to be in the business of owning energy sources?

Hubbard: No. And I really think they shouldn’t be in the business of owning energy sources. I don’t think that’s how you get an efficient market outcome.

BRINK: What sorts of new businesses do you think will emerge in the next five to 10 years as a result of blockchain?

Hubbard: Partly data-driven businesses, partly distributed energy resources (DER) aggregation businesses and also shift energy businesses. For example, a company is already looking at providing batteries for electric vehicles based on the fact that they can then trade those batteries within the vehicle, which takes away the worry of vehicle owners that the battery will be degraded too fast. It also enables someone to essentially aggregate massive amounts of flexible kinds of distributor loads. I also think the aggregator model has been really under-scaled recently. Who will provide people with services that manage all their utilities, trade those utilities for them and guarantee the price for them? Basically we should expect to see business models that require much more granular information and more open market access that we don’t have today.

BRINK: You’ve clearly gone into this business because you see this as a huge opportunity. But what are the kind of risks involved in shifting to a blockchain-oriented economy?

Hubbard: I think you can mitigate a lot of the classic risks around hacking through running a consortium blockchain with visibility, transparency and data. A consortium blockchain is less likely to be hacked than a public blockchain because you have to have permission to engage on that blockchain. And even if that node was taken over, the other nodes would be able to identify that the node was hacked into and cut it off the system. And you would be able to reverse that stream before it was hacked into. So that would reduce some of those risks that are most common.

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Governance Remains ​a ​Key Imperative ​as Blockchain Evolves

This is the final piece in a five-part series on the business impact of blockchain technology.

To wrap up blockchain week, BRINK had a conversation with Joanna Hubbard, CEO of Electron, a London-based blockchain startup, about the role of government in blockchain, the opportunities it presents for new business models to flourish, and the risks associated with the technology. This Q&A has been edited for length and clarity.

BRINK: How has blockchain continued the trend toward decentralized power sources, which was already underway even before blockchain appeared on the scene?

Joanna Hubbard: I don’t think blockchain is changing decentralization—the cat was out of the bag already. I think what it’s doing, or what it’s capable of doing, is creating a new coordinating architecture that allows you to actually engage really small assets as a kind of safe central course. You can essentially coordinate all of your trading interests on the platform so that everyone trusts that they’re going to get from the market what they want from the market. I think what blockchain will enable us to develop is that kind of market trustee. You bring enough equality and different types of assets and products into a market, and you essentially trust the really diverse set of assets and the set of requirements designed to help balance the kind of increasingly intermittent overall system.

BRINK: What’s the role of government in the energy sector as it relates to blockchain?

Hubbard: I’m going to be really unpopular in saying this, but I think blockchain is a fantastic source of governance. I think that government will be involved in setting the essential basic rules and parameters of the systems and evolving those rules. A lot of the rules are going to be around data validity: what kind of license do you need to be paid at, what data sets can you see, how much of a system can you interact with? I think governments are going to be key in answering those questions.

Because energy is a local market product, different governments and different regions are going to have different rules. These different programs on the system create a kind of transparency of who’s going to be expected to trade and on what basis—and that gives rise to a business world with a much more efficient market structure.

You can mitigate a lot of the classic risks around hacking through running a consortium blockchain with visibility, transparency and data.

BRINK: But doesn’t blockchain bypass the role of government, as it were? Does government still need to play a role in this?

Hubbard: Absolutely, in the end it does. If we’re talking about consortium blockchains, that means that you have to be commissioned to participate, and even then you have to be commissioned under full sanctions. So governments are creating rules around, for example, how much price risk the customer can be exposed to. So if someone wants to change their trade, they might not want to turn their electric power off and find that they got charged 1,000 pounds for half an hour of electricity. They need protection, and that will be a role specific to government and built in to the trading consortium blockchain.

BRINK: Right. But wouldn’t they need to be in the business of owning energy sources?

Hubbard: No. And I really think they shouldn’t be in the business of owning energy sources. I don’t think that’s how you get an efficient market outcome.

BRINK: What sorts of new businesses do you think will emerge in the next five to 10 years as a result of blockchain?

Hubbard: Partly data-driven businesses, partly distributed energy resources (DER) aggregation businesses and also shift energy businesses. For example, a company is already looking at providing batteries for electric vehicles based on the fact that they can then trade those batteries within the vehicle, which takes away the worry of vehicle owners that the battery will be degraded too fast. It also enables someone to essentially aggregate massive amounts of flexible kinds of distributor loads. I also think the aggregator model has been really under-scaled recently. Who will provide people with services that manage all their utilities, trade those utilities for them and guarantee the price for them? Basically we should expect to see business models that require much more granular information and more open market access that we don’t have today.

BRINK: You’ve clearly gone into this business because you see this as a huge opportunity. But what are the kind of risks involved in shifting to a blockchain-oriented economy?

Hubbard: I think you can mitigate a lot of the classic risks around hacking through running a consortium blockchain with visibility, transparency and data. A consortium blockchain is less likely to be hacked than a public blockchain because you have to have permission to engage on that blockchain. And even if that node was taken over, the other nodes would be able to identify that the node was hacked into and cut it off the system. And you would be able to reverse that stream before it was hacked into. So that would reduce some of those risks that are most common.

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Can Blockchain Power The Energy Business?

This is the fourth in a five part series on the business impact of blockchain technology.

The electric power industry has changed more in the past 10 years than the previous 100.

Thanks to dramatic cost reductions in renewable energy, the installation of smart devices, and improvements in software, we are now hurtling toward a decentralized, decarbonized and digitized electric grid. Today, more than 1 million American homes have solar, hundreds of thousands of electric vehicles are on U.S. roads and more than 70 million homes have smart meters. The grid is smarter, cleaner and more flexible than ever before.

The smart grid industry is not alone in its dramatic growth over the past decade. Applications of blockchain technology have skyrocketed since Bitcoin’s white paper was published in 2009, propelled by more than 1,000 initial coin offerings, billions of dollars of private funding and serious hype.

Blockchain and The Smart Grid

Blockchain technology has come into existence at a time when our increasingly complex electric infrastructure requires new management solutions that are smarter—and simpler—than the status quo. From an investor standpoint, the energy and blockchain industries are coming together in interesting ways.

The first-ever blockchain in energy transaction occurred in a microgrid in Brooklyn in April 2016. Since then, more than 100 energy blockchain startups have entered the space, backed by hundreds of millions of dollars in investment. While the industry still is young in terms of deployments (only 40 pilot projects have been installed to date), startups are focusing on a few use cases that may be well-suited for energy.

‘Smart Contracts’

Most existing startups in this market have initially focused on blockchain-enabled energy trading. Though the physical dimension of the electric grid has changed considerably due the proliferation of distributed energy resources, the financial dimension of energy transactions has remained stagnant. Here, blockchain shows promise. The technology can help create a virtual economic grid where consumers trade power among their own devices, their neighbors’ resources and the grid. Real time energy trading between peers could be automated, because blockchain is uniquely able to create digital agreements that self-execute when conditions are met, known as “smart contracts.”

Blockchain could manage your energy preferences

Blockchain puts the power to control power in its users’ hands. Residential consumers with solar on their roofs can specify the price at which they would be willing to sell surplus power, and neighbors without solar can set the rate at which they would prefer to buy from their neighbors rather than the utility.

Customers would set their preferences via an app, which would then translate the preferences into a smart contract on the blockchain. Most likely, a custom hardware device would also be installed on the customer’s home. The blockchain would receive price signals from the grid, output data from the solar array and usage information from the home.

Based on these data inputs, blockchain would execute energy trading transactions according to the customer’s smart contract preference. Since the average American spends less than 10 minutes a year thinking about their electric bill, the fact that blockchain can automate this process makes customers more likely to use the solution. Trading can occur within a microgrid, a designated geographic area or in a utility territory.

IBM has piloted a similar concept through a partnership with Sonnen, a residential energy storage company based in Germany, and Tennet, a grid operator in the Netherlands and Germany. In the pilot, Tennet sends a signal via IBM’s blockchain to Sonnen’s fleet of residential batteries to charge or discharge depending on the grid’s needs. Residential customers receive the batteries for free in exchange for agreeing to relinquish occasional control to the grid operator.  Battery management for grid services is being done today by companies like Autogrid and Advanced Microgrid Solutions without the use of blockchain.

Tokenizing Electricity

Another growing blockchain in energy application uses tokens to track electricity generating assets. In this application, blockchain companies create a token that represents one unit (often one kWh) of renewable electricity that a particular project has produced. These tokens are then sold to investors, businesses and consumers.

While there is potential for blockchain to help transform the energy sector, key questions remain.

Tokenizing electricity can allow people to share the ownership or output of renewable projects, and potentially increases liquidity in the renewable project finance market. Community solar, where a solar project is sold in pieces to multiple remote customers, is one such model and has already been adopted in 26 states without blockchain. But blockchain could make this structure more widespread and enable borderless transactions.

Energy blockchain startups have many applications beyond those featured here, including tracking electric vehicles charging, registering renewable assets and generation, and wholesale gas and power trading. The Energy Web Foundation, a non-profit organization focused on accelerating blockchain technology across the energy sector, has identified more than 200 potential use of blockchain in energy.

Both the energy sector and blockchain technology are rapidly changing, so the best uses cases are continually evolving, making the best investment targets difficult. But finding the right use case is just one of many potential roadblocks for energy blockchain startups.  

Where Are The Downsides?

While there is potential for blockchain to help transform the energy sector, key questions remain—especially for venture capitalists determining how to invest in the space.

Regulation. Because the energy sector is highly regulated, many possible blockchain in energy applications are currently prohibited or run the risk of becoming so later.

In energy trading, for example, there is a risk of being regulated as a utility for buying and selling power. Companies producing tokens also worry about Securities and Exchange Commission regulations. Most pilot projects to date have been implemented in places where regulators have allowed temporary “regulatory sandboxes.”

It’s one thing to invest in a company that carries some regulatory risk; it’s another issue to bet on specific regulatory change for a company to operate legally. In the long run, multiple rules must change to allow blockchain to realize its full potential in energy.

Transparency. Blockchain is attractive because it can provide public, trustless networks. But wholesale trading and end customer usage data is largely private. And most energy trades need to be authorized by a trusted party. Private and permissioned blockchains certainly exist, but startups will not scale at the pace necessary to justify venture investment if they can’t adequately address privacy and trust issues.

Too energy-intensive. The blockchain industry also must find less energy-intensive ways to process transactions. Bitcoin mining already consumes more electricity than the country of Ireland, and single transactions can consume the equivalent of a full charge of an electric vehicle. Making the grid cleaner and more efficient through blockchain is irrelevant if the technology itself is using more electricity than it could ever save. Changing the consensus protocol from proof of work to proof of stake or proof of authority is less energy intensive and a step in the right direction.  

Early Days

The ability of a startup to retain value and exert pricing power in the space, perhaps the most important consideration from an investor standpoint, is unclear. Even for startups that have identified a business model in addition to their use case (many have not), the applications are too early for market power dynamics to have played out. Will it be the software and services layer like IBM that is the most powerful? The applications layer that interfaces with the customer? Or the distributed energy company that acquired the customer in the first place? For venture capitalists used to investing in later-stage startups, there are simply not yet enough deployments to answer these questions.

We are still in the early days for blockchain in energy. Many companies are still hammering out the details of their solution, not to mention attractive business models or paths to profitability. But if the blockchain industry can navigate regulatory hurdles, increase privacy, lower transaction costs and find scalable business models, blockchain will be an enabler of the future of the smart grid.

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Can Blockchain Power The Energy Business?

This is the fourth in a five part series on the business impact of blockchain technology.

The electric power industry has changed more in the past 10 years than the previous 100.

Thanks to dramatic cost reductions in renewable energy, the installation of smart devices, and improvements in software, we are now hurtling toward a decentralized, decarbonized and digitized electric grid. Today, more than 1 million American homes have solar, hundreds of thousands of electric vehicles are on U.S. roads and more than 70 million homes have smart meters. The grid is smarter, cleaner and more flexible than ever before.

The smart grid industry is not alone in its dramatic growth over the past decade. Applications of blockchain technology have skyrocketed since Bitcoin’s white paper was published in 2009, propelled by more than 1,000 initial coin offerings, billions of dollars of private funding and serious hype.

Blockchain and The Smart Grid

Blockchain technology has come into existence at a time when our increasingly complex electric infrastructure requires new management solutions that are smarter—and simpler—than the status quo. From an investor standpoint, the energy and blockchain industries are coming together in interesting ways.

The first-ever blockchain in energy transaction occurred in a microgrid in Brooklyn in April 2016. Since then, more than 100 energy blockchain startups have entered the space, backed by hundreds of millions of dollars in investment. While the industry still is young in terms of deployments (only 40 pilot projects have been installed to date), startups are focusing on a few use cases that may be well-suited for energy.

‘Smart Contracts’

Most existing startups in this market have initially focused on blockchain-enabled energy trading. Though the physical dimension of the electric grid has changed considerably due the proliferation of distributed energy resources, the financial dimension of energy transactions has remained stagnant. Here, blockchain shows promise. The technology can help create a virtual economic grid where consumers trade power among their own devices, their neighbors’ resources and the grid. Real time energy trading between peers could be automated, because blockchain is uniquely able to create digital agreements that self-execute when conditions are met, known as “smart contracts.”

Blockchain could manage your energy preferences

Blockchain puts the power to control power in its users’ hands. Residential consumers with solar on their roofs can specify the price at which they would be willing to sell surplus power, and neighbors without solar can set the rate at which they would prefer to buy from their neighbors rather than the utility.

Customers would set their preferences via an app, which would then translate the preferences into a smart contract on the blockchain. Most likely, a custom hardware device would also be installed on the customer’s home. The blockchain would receive price signals from the grid, output data from the solar array and usage information from the home.

Based on these data inputs, blockchain would execute energy trading transactions according to the customer’s smart contract preference. Since the average American spends less than 10 minutes a year thinking about their electric bill, the fact that blockchain can automate this process makes customers more likely to use the solution. Trading can occur within a microgrid, a designated geographic area or in a utility territory.

IBM has piloted a similar concept through a partnership with Sonnen, a residential energy storage company based in Germany, and Tennet, a grid operator in the Netherlands and Germany. In the pilot, Tennet sends a signal via IBM’s blockchain to Sonnen’s fleet of residential batteries to charge or discharge depending on the grid’s needs. Residential customers receive the batteries for free in exchange for agreeing to relinquish occasional control to the grid operator.  Battery management for grid services is being done today by companies like Autogrid and Advanced Microgrid Solutions without the use of blockchain.

Tokenizing Electricity

Another growing blockchain in energy application uses tokens to track electricity generating assets. In this application, blockchain companies create a token that represents one unit (often one kWh) of renewable electricity that a particular project has produced. These tokens are then sold to investors, businesses and consumers.

While there is potential for blockchain to help transform the energy sector, key questions remain.

Tokenizing electricity can allow people to share the ownership or output of renewable projects, and potentially increases liquidity in the renewable project finance market. Community solar, where a solar project is sold in pieces to multiple remote customers, is one such model and has already been adopted in 26 states without blockchain. But blockchain could make this structure more widespread and enable borderless transactions.

Energy blockchain startups have many applications beyond those featured here, including tracking electric vehicles charging, registering renewable assets and generation, and wholesale gas and power trading. The Energy Web Foundation, a non-profit organization focused on accelerating blockchain technology across the energy sector, has identified more than 200 potential use of blockchain in energy.

Both the energy sector and blockchain technology are rapidly changing, so the best uses cases are continually evolving, making the best investment targets difficult. But finding the right use case is just one of many potential roadblocks for energy blockchain startups.  

Where Are The Downsides?

While there is potential for blockchain to help transform the energy sector, key questions remain—especially for venture capitalists determining how to invest in the space.

Regulation. Because the energy sector is highly regulated, many possible blockchain in energy applications are currently prohibited or run the risk of becoming so later.

In energy trading, for example, there is a risk of being regulated as a utility for buying and selling power. Companies producing tokens also worry about Securities and Exchange Commission regulations. Most pilot projects to date have been implemented in places where regulators have allowed temporary “regulatory sandboxes.”

It’s one thing to invest in a company that carries some regulatory risk; it’s another issue to bet on specific regulatory change for a company to operate legally. In the long run, multiple rules must change to allow blockchain to realize its full potential in energy.

Transparency. Blockchain is attractive because it can provide public, trustless networks. But wholesale trading and end customer usage data is largely private. And most energy trades need to be authorized by a trusted party. Private and permissioned blockchains certainly exist, but startups will not scale at the pace necessary to justify venture investment if they can’t adequately address privacy and trust issues.

Too energy-intensive. The blockchain industry also must find less energy-intensive ways to process transactions. Bitcoin mining already consumes more electricity than the country of Ireland, and single transactions can consume the equivalent of a full charge of an electric vehicle. Making the grid cleaner and more efficient through blockchain is irrelevant if the technology itself is using more electricity than it could ever save. Changing the consensus protocol from proof of work to proof of stake or proof of authority is less energy intensive and a step in the right direction.  

Early Days

The ability of a startup to retain value and exert pricing power in the space, perhaps the most important consideration from an investor standpoint, is unclear. Even for startups that have identified a business model in addition to their use case (many have not), the applications are too early for market power dynamics to have played out. Will it be the software and services layer like IBM that is the most powerful? The applications layer that interfaces with the customer? Or the distributed energy company that acquired the customer in the first place? For venture capitalists used to investing in later-stage startups, there are simply not yet enough deployments to answer these questions.

We are still in the early days for blockchain in energy. Many companies are still hammering out the details of their solution, not to mention attractive business models or paths to profitability. But if the blockchain industry can navigate regulatory hurdles, increase privacy, lower transaction costs and find scalable business models, blockchain will be an enabler of the future of the smart grid.

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Could Blockchain Revolutionize Advertising?

This is the third in a five part series on the business impact of blockchain technology.

One of the most promising uses of blockchain is in digital advertising. As companies shift their advertising budgets online, lured by growing audiences and the potential for unprecedented targeting and personalization, the advertising marketplace has become increasingly opaque.

But according to a new report by the Interactive Advertising Bureau, a trade group of global media and technology companies, blockchain has the potential to transform digital advertising market and build a transparent market.

Risk of Fraud

The primary hazard in online advertising is outright fraud, as hackers find increasingly clever ways to create fake web traffic, a phenomenon generated by bots rather than actual human visitors to a site. The consultancy Juniper Research estimates that advertisers will lose $19 billion to fraudsters in 2018, or 9 percent of total digital advertising spend.

Then there’s the reputational risk of companies’ ads ending up on sites that reflect poorly on their brand. Additionally, online advertising turns off a lot of consumers who believe their personal information is being misused for targeting.

Murky Supply Chain

Much of the problem arises from the murky nature of the digital advertising supply chain. Advertisers and publishers employ a range of intermediaries such as agencies, exchanges and networks, some of which employ difficult-to-understand algorithms and face contradictory incentives. The resulting ecosystem is easy to hack—and impossible to audit.

Several initiatives are underway that plan to use blockchain to build more transparent and efficient links between buyers and sellers in the advertising marketplace.

“As an immutable, distributed, transparent ledger, blockchain is a natural fit for the digital supply chain,” according to the report by the IAB. Blockchain technology could contribute to “a vision of a more transparent, brand-safe, and fraud-free media landscape made up of trusted, verified trading partners.”

Building Trust

“A major attraction of blockchain for digital advertising is its potential to enable consensus, collaboration, and trust between buyers and sellers,” the IAB contends.

Media inventory suppliers and buyers spend an inordinate amount of time reconciling campaign discrepancies be they for raw impression counts, viewability, brand safety, or quality of traffic. There is also the ongoing headache of managing multiple versions of terms and conditions.

Smart Contracts

One company, Kochava, is working on a new blockchain framework that is uniquely suited to the high-speed transactions occurring in digital advertising. The framework, known as XCHNG, uses “smart contracts” that would execute automatically when conditions are met involving ad placement, views, and payment. The XCHNG system is “traceable and trackable” and allows buyers and sellers to work together without an intermediary, according to Kochava CEO Charles Manning.

Blockchain could usher in a new level of collaboration and trust between advertisers, publishers and consumers.

One group of programmers has developed a blockchain-enabled registry of legitimate, reputable publishers called adChain. The registry, which launches in April, will be maintained by individuals who are paid in cryptocurrency to flag fraudulent or low-quality sites. AdChain’s developers promise to produce “a comprehensive audit trail for everything related to a campaign.”

Sharing Data Securely

Blockchain allows the owner of a record (or “block”) to directly and securely share data using a cryptographic key. It eliminates the need to upload valuable information to databases, as well as the risk of intermediaries who can limit access to the data or lose access to a hacker. This could usher in a new level of collaboration and trust between advertisers, publishers and consumers.

Comcast is developing a blockchain-enabled platform that will “turn the television industry (i.e. advertisers, programmers, operators, and device owners) into their own peer-to-peer distributed database,” Jonathan Heller, chief product officer of Comcast’s Freewheel division, told the IAB. “You will have the effect of having the collection of everyone’s data without anyone’s data actually going anywhere, changing hands, or being exposed in any way. Then you can report or target off of that. All the blockchain does is add the trust layer.”

By enabling greater data-sharing among industry partners who will not have to give up proprietary customer information, the platform—variously referred to as the Blockchain Insights Platform or Blockgraph—will enable more precise and efficient targeting of customers across screens.

Keeping Personal Data Safe

Personal data about consumers—their demographics, behaviors and interests—are the lifeblood of the digital advertising industry. Right now, however, this data can be easily hacked or misused. The blockchain holds the promise of a day when consumers exert greater control over their personal data and what promotions they see.  

One example is BitClave, which promises to pay consumers with cryptocurrency in exchange for using its search engine. The company rewards consumers—not advertising firms or other middlemen—for data about their interests. Tomorrow’s companies may have to pay consumers more directly to make their pitch, but they may also be able to achieve more precise targeting.

The Future

Blockchain technology faces some significant challenges in transforming the ad industry. Most notably, the process of querying or writing to a blockchain is currently much slower than the process of placing ads online, the IAB says.

But the IAB predicts blockchain will roll through the ad industry in a serious way during the next couple of years.

“2018 will be the year that a wide range of blockchain applications will be rolled out across digital and cross-screen video advertising including linear television,” the IAB says, “with 2019 likely being the year that these technologies begin to see broader adoption—provided certain risks can be mitigated.”

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Is Blockchain a Threat to National Governments?

This is the second in a five-part series on the business impact of blockchain technology.

The blockchain technology is testing the limits of governments’ power. Thanks to the rise of cryptocurrencies and the underlying blockchain technology, we are starting to see the rise of globally interconnected “private” economies that could threaten the very concept of a nation-state.

Ever since the end of World War II, governments have had a dominant influence on developed world economies, whether through industrial policy or monetary and fiscal policy. In the past ten years, we’ve seen how these policy instruments have become either increasingly difficult to implement (industrial policy) or increasingly ineffective (fiscal/monetary).

Governments are being undermined by platform and ecosystem dynamics. Apple is an example of a platform and ecosystem business, as are Alibaba, Uber and Airbnb. These platforms are enablers of wider business activity, which is also what blockchain, along with cryptocurrencies, does. These platforms, currencies and ecosystems are the latest step in the privatization of key government functions, enabling organizations to appropriate essential policy functions such as monetary management.

Apple’s major achievements belong to the peak of the Great Recession, when governments were being overwhelmed by the economic chaos: The iPhone launched in 2007; the App Store opened in 2008; the iPad was introduced in 2010. During these testing years, people all over the world turned to the arguably over-priced iPhone in droves. Google had similar success with Android. Amazon’s real business, Amazon Web Services, is a child of the recession, too. In China, Alibaba began to turbo-power its growth in this same period. TenCent, one of China’s most dynamic digital giants, tore down its old platform and rebuilt from scratch in 2011.

These companies were effective because they broke with the traditional model of a company in a supply chain. They were enablers of third-party businesses: app developers (in the millions), merchants, content creators, search marketers and so on, and they built huge new economies around their core platform in the space of a few years.

A report from 2014 estimated that apps would create 4.8 million jobs in the European Union between 2013 and 2018. Apple believes it has created over 2 million jobs in the U.S., alone. These job creation statistics tell us that platform enterprises have a role in the economy far beyond their own profit and loss.

Second, platforms choose their own tax jurisdictions and effectively choose their own tax rate, negotiating with governments and not necessarily having to compromise.

Alibaba has been extensively involved in economic development in rural China where, in 2016, it promised to train 1 million new entrepreneurs. In the U.S., it promised to bring 1 million small businesses into U.S.-China trade and is pressuring the World Trade Organization for a new regime for small business trading. The company expects to become equivalent to the world’s fifth largest economy by 2036, creating 100 million jobs in the process. Gross merchant value next year will be in the region of $1 trillion (see Markets of Billions).

Policymakers and regulators are struggling to handle the repercussions of these businesses. For example, they would like to find a way to bring Apple’s vast $250 billion cash hoard into the tax system; Airbnb is a target for regulation to prevent short-term rentals from distorting urban housing markets; Uber undermines wage levels in existing transportation structures; Google controls access to knowledge and data and prioritizes what we discover based on what its advertisers might want to sell; and Facebook is under the hammer for the use of data in political strategy.

Cryptocurrencies challenge governments’ control over money supply and their power to shape the economy through investment incentives.

The blockchain and cryptocurrency movement is essentially a follow-on from this. They are platform and ecosystem businesses, just as Apple and Alibaba are. There are currently 1,800 new blockchain and cryptocurrency projects—even after a likely significant shake out that will leave a hundred or so companies, with substantial business ecosystems, trading with their own currencies and building their own currency management models.

The blockchain project Blockshipping brings together all the actors in the shipping industry—ship owners, container owners, freight companies and customs—in one collaborative ecosystem to design the process model for the future of cargo. That is an ecosystem—and therein lies the big distinction. These are self-managing entities potentially covering vast parts of the global economy.

Ethereum is promoting a radically different culture by acting not only as a champion for decentralized blockchain but decentralized business, more broadly—making it easy to launch businesses backed by a new currency. It is not just a platform for launching new blockchain initiatives, it also aspires to form a new culture of business that is global and self-funding and, like other platforms and ecosystems, agnostic or even antagonistic toward governments.

These entities perform important economic roles that governments have shown themselves unable to do, such as job creation. They reduce the significance of key rationales for taxation—job creation, innovation, industrial policy. Cryptocurrencies also challenge governments’ control over money supply and their power to shape the economy through investment incentives.

Many of the centers of cryptocurrency activity are in old offshore havens such as Switzerland, Grand Cayman and Gibraltar. The currencies are set up under a charitable foundation structure, absolving them of some tax obligations. But that is not its most subversive element. These ecosystems are essentially privatizing government functions such as money issue and economic development.

How will the world look when large segments of the global economy are run as business ecosystems deferring to an offshore foundation, or being simply so large as to be untouchable?

This raises the question: How big is the platform and ecosystem threat as it draws blockchain and cryptocurrency ecosystems in? Goldman Sachs currently estimates that a crypto-collapse would affect about 1 percent of GDP, but already 2018 looks like it will hit triple the investment levels of 2017.

By 2025, there will be a shakeout of at least 95 percent of today’s cryptocurrencies (the normal tech failure rate). That still leaves a potential residue of over 100 private currencies, which will diversify and merge with each other over time. By 2030, maybe there will be a dozen (as a point of comparison, the U.S. car industry had over 100 companies at its inception but shrunk to a handful within 30 years).

By 2025 cryptocurrencies will impact at least 3 percent of the global economy, a figure just about exceeding global GDP growth. Maybe it reaches as much as 5 to 8 percent by 2030, with some currencies showing how the role of (private) central banks can add value to lives and to businesses.

This does not look like a world controlled by multilateral institutions protecting and promoting the interests of nation-states. Today’s crisis in government is already in part a a crisis of impotence, and it’s likely to get worse.

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How Much Do You Know About Blockchain?

Blockchain is attracting huge amounts of attention, but its implications are often poorly understood. Starting today, BRINK is running a five-part series on the business implications of blockchain technology.

The most well-known use for blockchain is providing the platform for cryptocurrencies. This Q&A is a summary of a detailed briefing on the policy implications of cryptocurrencies that was released last month by Oliver Wyman.

Q: What is a cryptocurrency?

A: There is no commonly accepted definition, but the Bank for International Settlements defines it as a digital payment that lacks an intermediary (hence “peer-to-peer”) and does not represent the obligations of an issuer.

Q: Why do cryptocurrencies exist?

A: They fit in a few broad categories:

  • Digital cash coins, such as Bitcoin, are a cash alternative that is free from government or central bank control and may offer greater anonymity than conventional payment systems.
  • Payment infrastructure tokens, such as Ripple or Utility Settlement Coin, support a payment system for conventional currencies but with advantages in cost, speed or reliability.
  • Securities tokens, such as RMG, support peer-to-peer trading in an ownership stake of an asset such as gold or art.
  • Utility tokens, such as Filecoin, support trading of goods or services such as data storage or computing power.
  • General platform tokens, such as Ether, support a platform for the use of decentralized electronic peer-to-peer transactions for a variety of other needs.

Different cryptocurrencies are designed for different purposes. Some cryptocurrencies are accessible to the public while others are only “permissioned” to authorized users. Some cryptocurrencies make it easier or harder to audit transactions or trace them to individual users. Cryptocurrencies also employ varying cryptographic techniques, which can greatly influence transaction costs.

Q: How big is the cryptocurrency market?

A: Roughly $400 billion to $800 billion, but the number is difficult to estimate. The global value peaked in January at over $800 billion but tumbled to less than $500 billion a couple weeks later.

Exhibit 1: Market Cap by Cryptocurrency ($billion, as of 2/8/2018)

Source: Oliver Wyman

Q: How does blockchain relate to cryptocurrencies?

A: Blockchain is the underlying technology behind most, but not all, cryptocurrencies.

A blockchain is a continuously growing list of electronic records (blocks) that are sequentially linked using cryptography. This list, or “ledger,” is stored and maintained by a network of users (nodes) that collectively validates each new block and keeps synchronized replicas of the entire ledger—therefore eliminating the need for a central, trusted counterparty.

Exhibit 2: How a Blockchain Transaction Works

Source: Oliver Wyman

Q: How could cryptocurrencies and blockchain affect economic growth?

A: Cryptocurrencies have the potential to improve payments and payment-like processes, enabling lower costs and increased speed, transparency, reliability, and immediacy in availability of funds. If transaction costs are lowered and cryptocurrency values stabilize, cryptocurrencies could help to expand payment services and promote financial inclusion among populations with limited access to formal banks.

Blockchain could facilitate record management for many other activities, such as voting, government services, identity management, energy distribution, agricultural trading, and even food traceability. New and unexpected applications are likely to appear in the coming years for both cryptocurrency and blockchain.

Q: What could be the impact on financial stability?

A: Cryptocurrencies have the potential to destabilize the financial system, but they might also provide new tools for managing financial stability. This may depend on how cryptocurrency adoption evolves and how interlinked it becomes with existing systems.

Volatile cryptocurrency prices and weak consumer and investor protections could produce losses that affect important financial institutions or markets. The relative opacity of cryptocurrencies and weak understanding of them by the public, and even many in the financial sector, could exacerbate any resulting loss of confidence or drying up of liquidity and credit.

Cryptocurrency prices have been extremely volatile, and leverage could increase the impact of this volatility. This could become problematic if financial institutions become exposed to these risks. So far, however, the exposure of financial institution and institutional investors is very limited.

But cryptocurrencies could also reduce systemic risks in the financial system, especially in the payments sector. If transactions were executed and funds exchanged, almost instantaneously, a number of credit risks in our existing system would disappear.

Q: How might monetary policy be affected by cryptocurrencies?

A: Cryptocurrencies could have a large impact on monetary policy if they become a real substitute for conventional currencies. However, existing levels of cryptocurrencies are dwarfed by the volume of major conventional currencies. While the value of cryptocurrencies recently peaked at $800 billion, the world’s money supply (including cash held in accounts) is over $90 trillion.

In the near term, countries with exchange and capital controls face the greatest risk. Market participants could circumvent these controls by using cryptocurrencies for capital transfers or foreign exchange transactions. This depends on whether a government restricts buying or redeeming cryptocurrencies with their national currency.

Q: How could fiscal policy be affected by cryptocurrencies?

A: The benefits of printing money would be at least partially at risk if cryptocurrencies become a substitute for national currency. In the more immediate term, cryptocurrencies could have an impact on tax receipts, as they may allow for easier tax evasion.

Taxation of permissioned cryptocurrencies only requires regulating and overseeing a set of known permissioned entities. But regulating public cryptocurrencies such as Bitcoin requires setting standards and enforcing them across a decentralized, global, anonymous network.

Tax authorities have recently sought insight into transaction volumes for Bitcoin and other cryptocurrencies, but it is difficult to comprehensively ascertain ownership across the cryptocurrency market.

Q: Could cryptocurrencies require new consumer or investor protections?

A: Cryptocurrencies have been rife with fraud, including investment schemes “guaranteeing” high returns and pump-and-dump schemes. Few regulations are in place. An estimated $4 billion was raised in 2017 through initial coin offerings (ICOs), many of which were open to any investor. The light regulation was doubtless an incentive for most ICO issuers, but it’s not always clear even what current regulations apply to ICOs. Some ICOs have promised big returns in exchange for tokens that may result in total losses.

China has prohibited ICOs and cryptocurrency trading in specialized exchanges and has moved to block access to ICOs and cryptocurrency trading websites. By contrast, Australia and Japan have recognized cryptocurrencies as a means of payment and a financial asset.

There is no consensus on the right approach. As policymakers and industry participants pursue answers to these questions about cryptocurrency, there’s likely to be a push for increased global coordination in policy, but it is still too early to bet on which direction they will follow.

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How Much Do You Know About Blockchain?

Blockchain is attracting huge amounts of attention, but its implications are often poorly understood. Starting today, BRINK is running a five-part series on the business implications of blockchain technology.

The most well-known use for blockchain is providing the platform for cryptocurrencies. This Q&A is a summary of a detailed briefing on the policy implications of cryptocurrencies that was released last month by Oliver Wyman.

Q: What is a cryptocurrency?

A: There is no commonly accepted definition, but the Bank for International Settlements defines it as a digital payment that lacks an intermediary (hence “peer-to-peer”) and does not represent the obligations of an issuer.

Q: Why do cryptocurrencies exist?

A: They fit in a few broad categories:

  • Digital cash coins, such as Bitcoin, are a cash alternative that is free from government or central bank control and may offer greater anonymity than conventional payment systems.
  • Payment infrastructure tokens, such as Ripple or Utility Settlement Coin, support a payment system for conventional currencies but with advantages in cost, speed or reliability.
  • Securities tokens, such as RMG, support peer-to-peer trading in an ownership stake of an asset such as gold or art.
  • Utility tokens, such as Filecoin, support trading of goods or services such as data storage or computing power.
  • General platform tokens, such as Ether, support a platform for the use of decentralized electronic peer-to-peer transactions for a variety of other needs.

Different cryptocurrencies are designed for different purposes. Some cryptocurrencies are accessible to the public while others are only “permissioned” to authorized users. Some cryptocurrencies make it easier or harder to audit transactions or trace them to individual users. Cryptocurrencies also employ varying cryptographic techniques, which can greatly influence transaction costs.

Q: How big is the cryptocurrency market?

A: Roughly $400 billion to $800 billion, but the number is difficult to estimate. The global value peaked in January at over $800 billion but tumbled to less than $500 billion a couple weeks later.

Exhibit 1: Market Cap by Cryptocurrency ($billion, as of 2/8/2018)

Source: Oliver Wyman

Q: How does blockchain relate to cryptocurrencies?

A: Blockchain is the underlying technology behind most, but not all, cryptocurrencies.

A blockchain is a continuously growing list of electronic records (blocks) that are sequentially linked using cryptography. This list, or “ledger,” is stored and maintained by a network of users (nodes) that collectively validates each new block and keeps synchronized replicas of the entire ledger—therefore eliminating the need for a central, trusted counterparty.

Exhibit 2: How a Blockchain Transaction Works

Source: Oliver Wyman

Q: How could cryptocurrencies and blockchain affect economic growth?

A: Cryptocurrencies have the potential to improve payments and payment-like processes, enabling lower costs and increased speed, transparency, reliability, and immediacy in availability of funds. If transaction costs are lowered and cryptocurrency values stabilize, cryptocurrencies could help to expand payment services and promote financial inclusion among populations with limited access to formal banks.

Blockchain could facilitate record management for many other activities, such as voting, government services, identity management, energy distribution, agricultural trading, and even food traceability. New and unexpected applications are likely to appear in the coming years for both cryptocurrency and blockchain.

Q: What could be the impact on financial stability?

A: Cryptocurrencies have the potential to destabilize the financial system, but they might also provide new tools for managing financial stability. This may depend on how cryptocurrency adoption evolves and how interlinked it becomes with existing systems.

Volatile cryptocurrency prices and weak consumer and investor protections could produce losses that affect important financial institutions or markets. The relative opacity of cryptocurrencies and weak understanding of them by the public, and even many in the financial sector, could exacerbate any resulting loss of confidence or drying up of liquidity and credit.

Cryptocurrency prices have been extremely volatile, and leverage could increase the impact of this volatility. This could become problematic if financial institutions become exposed to these risks. So far, however, the exposure of financial institution and institutional investors is very limited.

But cryptocurrencies could also reduce systemic risks in the financial system, especially in the payments sector. If transactions were executed and funds exchanged, almost instantaneously, a number of credit risks in our existing system would disappear.

Q: How might monetary policy be affected by cryptocurrencies?

A: Cryptocurrencies could have a large impact on monetary policy if they become a real substitute for conventional currencies. However, existing levels of cryptocurrencies are dwarfed by the volume of major conventional currencies. While the value of cryptocurrencies recently peaked at $800 billion, the world’s money supply (including cash held in accounts) is over $90 trillion.

In the near term, countries with exchange and capital controls face the greatest risk. Market participants could circumvent these controls by using cryptocurrencies for capital transfers or foreign exchange transactions. This depends on whether a government restricts buying or redeeming cryptocurrencies with their national currency.

Q: How could fiscal policy be affected by cryptocurrencies?

A: The benefits of printing money would be at least partially at risk if cryptocurrencies become a substitute for national currency. In the more immediate term, cryptocurrencies could have an impact on tax receipts, as they may allow for easier tax evasion.

Taxation of permissioned cryptocurrencies only requires regulating and overseeing a set of known permissioned entities. But regulating public cryptocurrencies such as Bitcoin requires setting standards and enforcing them across a decentralized, global, anonymous network.

Tax authorities have recently sought insight into transaction volumes for Bitcoin and other cryptocurrencies, but it is difficult to comprehensively ascertain ownership across the cryptocurrency market.

Q: Could cryptocurrencies require new consumer or investor protections?

A: Cryptocurrencies have been rife with fraud, including investment schemes “guaranteeing” high returns and pump-and-dump schemes. Few regulations are in place. An estimated $4 billion was raised in 2017 through initial coin offerings (ICOs), many of which were open to any investor. The light regulation was doubtless an incentive for most ICO issuers, but it’s not always clear even what current regulations apply to ICOs. Some ICOs have promised big returns in exchange for tokens that may result in total losses.

China has prohibited ICOs and cryptocurrency trading in specialized exchanges and has moved to block access to ICOs and cryptocurrency trading websites. By contrast, Australia and Japan have recognized cryptocurrencies as a means of payment and a financial asset.

There is no consensus on the right approach. As policymakers and industry participants pursue answers to these questions about cryptocurrency, there’s likely to be a push for increased global coordination in policy, but it is still too early to bet on which direction they will follow.

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How Do You Transform the Tax Windfall into Talent?

This is the final piece in a three-part series on the U.S. tax changes.


When the U.S. corporate tax rate tumbled from 35 percent to 21 percent following last year’s passage of the
Tax Cuts and Jobs Act, companies of all sizes welcomed the windfall. More than a few one-off bonuses and minimum-wage increases cheered employees, along with the sudden prospect of less cash withheld from paychecks.

It was a good start for a new era of lower taxation, opening the door to important conversations happening in boardrooms and C-suites, where more substantial growth-driving investment options are the priority—and where strategic vision must thrive.

It’s All About the Talent

Now is the time for leaders to prioritize directing a portion of the new investment dollars into building a workforce that is well-prepared for the future. Those who choose to do so will find themselves ahead of the game.

The workforce is the engine of every business. Every C-suite needs to develop a workforce strategy and development plan for a future fueled by rapidly changing digital, automation, robotics and AI—a workforce strengthened and enabled by technological advancement.

With their available dollars from the tax reform, chief human resource officers, in particular, need to go on the offensive to galvanize their respective companies on a workforce strategy and the workforce capabilities required to win now and well into the future.

The Case for Action

There is a deadline brewing that will separate those who act now from those who wait.  

Under the new law, September 15, 2018, is the last day to pre-fund pension plans to potentially realize 20 percent-plus in post-tax savings on contributions. By acting now, companies can maximize their tax savings for further investment opportunity.

Many employees are increasingly anxious about their ability to retire let alone retain their jobs with the rapid advancements in automation, artificial intelligence and robotics. According to research from the World Economic Forum, 35 percent of today’s core workforce skills could change by 2020, and more than 6 million job roles decline while others rise steeply over the next several years. When you combine these facts with an unemployment rate that is already at historic lows, companies that are ill-equipped will be on the losing side of the war for talent.

There is rising anxiety in the workforce. Amidst rising corporate profits, wages have declined or remained stagnant.

The Equity Issue

There’s also rising anxiety among the workforce caused by expectations of sharing in the growing wealth of their companies. Amidst rising corporate after-tax profits and shareholder dividends, wages have declined or remained stagnant since 2000.

The disparity between CEO and worker pay has become an increasingly public, transparent issue. The Pew Research Center reports that 72 percent of Americans are worried about technology replacing human jobs, and Mercer’s 2018 Healthy, Wealthy and Work-Wise survey suggests that only 39 percent of men and 23 percent of women are confident they can save enough to retire. No wonder employees are increasingly wondering, “Am I ever going to be fairly rewarded for my work when my company and its leaders seem to be doing great?”

How To Strengthen Your Workforce in 5 Steps

Every C-suite has a choice as to how and when they will respond. The investment dollars freed up from tax reform are the catalyst they need to lean into a response now—but the window is closing fast. Success means executing on five key areas before it’s too late:

  1. Maximize your tax savings. Increase your potential investment pool by pre-funding your pension plan by September 15, 2018, to potentially realize 20 percent-plus post-tax savings on contributions.   
  2. Create a brand-building compensation plan. Ensure your compensation strategy is competitive in the markets of today and tomorrow. At a time when pay equity is a hot topic, average raw pay gaps can still be between 20 percent and 40 percent across genders and ethnicities. Incredibly, 67 percent of companies do not have regular pay equity review processes. Protect your brand, reduce litigation risks—and simply do what’s right.
  3. Take the first step toward building a workforce for the future.Determine your talent roadmap. Clarify and communicate career development opportunities. Upskill and reskill your people to prepare for the future of work.
  4. Deliver a meaningful, differentiated value proposition. Align your employee value proposition to your company’s DNA, and deliver compelling reasons for people to join and stay. According to a study by Mercer | Sirota, companies with highly energized and engaged employees have 11 percent to 16 percent higher stock performance.
  5. Ignite your culture. Measure. Adjust. Repeat. Tell your employees everything you are doing to invest in their success and well-being. Build trust, as 65 percent of employees believe authenticity leads to improved satisfaction and loyalty. Use concrete data, such as improvements in engagement and contributions to business performance, to ensure your desired outcomes.

Visionaries, pioneers and challengers will double down on advancing their growth agenda by investing freed up dollars in preparing their workforce for the future of work. These leaders understand that decisions made today will either accelerate value creation and widen the gap with competition or place their companies in a perpetual state of “catching up” and share loss.

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Does U.S. Tax Reform Threaten Germany’s Economy?


This is the second in a three-part series on the impact of U.S. tax reform.


In the wake of the passing of major reforms to U.S. tax laws, the European Union and Germany urgently need to discuss the implications of the new measures for their own tax system.

Beyond the income tax changes, the U.S. reform reduces the tax burden on corporate profits and, importantly, puts in place a 100 percent expensing rule for capital investments. As a result, the U.S. will likely become more attractive as a place to invest and do business.

A first indication of the tax reform’s effects has been Apple’s recent announcement to plan a new “campus” in the U.S. and accelerate investments. Moreover, the tax reform will increase the deficit of the United States in a pro-cyclical way, which may further increase the current account deficit of the U.S.

A Race to the Bottom on Corporate Tax Rates?

The European Union’s first and most immediate concern with these reforms should be that of tax competition. This is a politically very sensitive topic; popular opinion is certainly very concerned by tax competition and the perceived shift of tax revenues away from corporate taxes to labor taxes.

One widespread political concern in Europe is that the Trump administration’s move will accelerate the race to the bottom on corporate tax rates and increase pressure in Europe to follow suit—with consequences for the financing of the relatively large European welfare state. This concern is particularly pronounced in France, which has a relatively high corporate tax rate. France has been strongly pushing the policy debate on achieving a more harmonized European corporate tax setting that would prevent a further race to the bottom in tax rates.

A second important consideration relates to the impact of the U.S. tax reform on current accounts. To start, the U.S. current account deficit could, at least initially, increase due to the increased fiscal deficit. Moreover, the gain in the relative attractiveness for investment in the U.S.—as compared to Europe and Germany—could pull corporate investments away from Europe and toward the U.S.

Excess of Corporate Savings

A combination of tax exemptions for domestic investment and a number of supply-side reforms would trigger a new and sustainable domestic boom in Germany.

It would be useful for the German policy establishment to have a serious conversation on German corporate tax reform.

The latter point should be of particular concern to the incoming German government. Germany currently has the largest current account surplus in the world, amounting to around 8 percent of GDP. From the beginning of monetary union—when Germany’s current account surplus was in slight deficit—through to the present, the move toward greater surplus has primarily been driven by increasing savings and falling investments in the German corporate sector. In particular, the low corporate investment in Germany has led to a stagnation of the German capital stock. Germany’s capital production intensity has fallen relative to that of the United States.

On a political level, Germany has been singled out by the U.S. president for its large bilateral trade surplus with the U.S. While the bilateral trade measure is not an economically useful measure, it does influence political perceptions in the U.S.

But organizations such as the IMF have been pointing to the fact that Germany’s current account surplus reflects an excess in corporate savings, relative to a weakness in corporate investment, which is undermining prospects for growth in Germany and is ultimately not in Germany’s interest.

Germany Should Consider Its Own Tax Reform

In these circumstances, it would be useful for the German policy establishment to have a serious conversation on German corporate tax reform. The coalition agreement puts a strong focus on reducing tax competition in the European Union by suggesting a collaboration with France on a common consolidated tax base and minimum tax rates. Neither Germany nor France wants to engage in a race to the bottom on corporate tax revenue, as they want to preserve a strong social model and a relatively large government sector.

Still, this approach does not provide an answer to the strategic challenge posed by the U.S. tax reform and its impact on investment in Germany. The German debate should add a focus on depreciation allowances for capital investment and for research and innovation investment. Such a tax reform would provide strong incentives for the German companies that currently hold large amounts of cash to invest in Germany.

Address the Issue Head-On

Rather than holding their savings in short-term assets with relatively low returns outside of Germany, a combination of tax exemptions for domestic investment and a number of supply-side reforms would trigger a new and sustainable domestic boom in Germany. This policy would not only be good in bringing down Germany’s current account surplus, it would also be helpful in further boosting salaries in Germany that have suffered partly from the weak development in German capital stock.

The new government should address the challenge posed by U.S. corporate tax reform head-on. A sensible response would be to incentivize corporate investments while cooperating with France on the tax base and the tax rates.

This article originally appeared on Bruegel’s website.

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