State of Play
The world economy is in the midst of a paradigm shift unlike anything we have seen before. We are transitioning from an industrial economy to a digital based economy with transforming business models and new drivers of growth. Unfortunately, the current global system and rulebook has been built for trade and flow of physical goods and is proving ill-equipped to deal with new challenges while maintaining free and open flows of data with trust. Instead, our current trajectory is moving toward an economic landscape that is increasingly national and protectionist in its march to apply old tools to new problems. Policy objectives, such as privacy, security, integrity, stability etc. are all well recognized as vital for all participants, however the mechanisms to achieve these objectives require a re-think if we are to maintain the growth a digital economy can provide.
This IIF staff paper was sparked by industry leaders and public officials observing that we are fast approaching an inflection point and a “Digital Bretton Woods” may be needed to hammer out the new rules for a digital world. When they had the presidency of the G20, the Japanese highlighted this challenge with their “Data Free Flow With Trust” (DFFT) initiative. This year the G7 has recognized the problem in the workstream and communiques but the agendas of the world are crowded. We aim for this paper to provide a state of play outlining the problems and drawing attention to the potential harm that the global march towards a fragmented and isolated digital economic landscape could bring.
The next paper in this series will look at solutions to this problem both at a global level but also in nodes of likeminded markets who are tackling these issues in bilateral and mutli-country trade and standards agreements. The digital transformation of financial services—with the adoption of cloud, AI/ML and data solutions—presents an opportunity to update the policy frameworks that have shaped international policy coordination for the past several decades and help shape the larger process. These are complex and challenging problems with emotional national dynamics but if we don’t find solutions the world risks a breakdown of the digital economy. No one will benefit from this outcome and the need for digital economic cooperation has never been greater.
Special thanks to Jaco Grobler who helped advance thinking on this topic both in his time as CRO of a member bank and as lead author on this report.