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Central Banks Becoming Leaders in Blockchain Experimentation

MD Staff

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Although central banks are among the most cautious institutions in the world, they are, perhaps surprisingly, among the first to implement and experiment with blockchain technology. Central banks have been quietly researching its possibilities since 2014. Over the past two years, the beginning of a new wave has emerged as more central banks launch large-scale pilots and research efforts, including rapid and complete cross-border interbank securities.

The Blockchain and Distributed Ledger Technology team at the World Economic Forum interviewed dozens of central bank researchers and analysed more than 60 reports on past and current research efforts. The findings were released today in a white paper, Central Banks and Distributed Ledger Technology: How are Central Banks Exploring Blockchain Today?

“As the blockchain hype cools, we are starting to see the real use cases for blockchain technology take the spotlight,” said Ashley Lannquist, Blockchain Project Lead at the World Economic Forum. “Central bank activities with blockchain and distributed ledger technology are not always well known or communicated. As a result, there is much speculation and misunderstanding about objectives and the state of research. Dozens of central banks around the world are actively investigating whether blockchain can help solve long-standing challenges such as banking and payments system efficiency, payments security and resilience, as well as financial inclusion.”

It is not widely known, for instance, that the Bank of France has fully replaced its centralized process for the provisioning and sharing of SEPA Credit Identifiers (SCIs) with a decentralized, blockchain-based solution. SEPA, or Single Euro Payments Area, is a payment scheme created by the European Union and managed on a country-by-country basis for facilitating efficient and secure cross-border retail debit and card payments across European countries. The solution is a private deployment of the Ethereum blockchain network and has been in use since December 2017. It has enabled greater time efficiency, process auditability and disaster recovery.

The fact that dozens of central banks are exploring, and in some cases implementing, blockchain technology is significant, according to the white paper. It is an early indicator of the potential use of this emerging technology across financial and monetary systems. “Central banks play one of the most critical roles in the global economy, and their decisions about implementing distributed ledger and digital currency technologies in the future can have far-reaching implications for economies,” Lannquist said.

Top 10 central bank use cases

Following interviews and analysis, how central banks are experimenting with blockchain can be highlighted by 10 top use cases.

Retail central bank digital currency (CBDC) –
A substitute or complement for cash and an alternative to traditional bank deposits. A central-bank-issued digital currency can be operated and settled in a peer-to-peer and decentralized manner, widely available for consumer use. Central banks from several countries are experimenting, including those from the the Eastern Caribbean, Sweden, Uruguay, the Bahamas and Cambodia.

Wholesale central bank digital currency (CBDC) – This kind of digital currency would only be available for commercial banks and clearing houses to use the wholesale interbank market.Central bank-issued digital currency would be operated and settled in a peer-to-peer and decentralized manner. Central banks from several countries are experimenting, including those from South Africa, Canada, Japan, Thailand, Saudi Arabia, Singapore and Cambodia.

Interbank securities settlement – A focused application of blockchain technology, sometimes involving CBDC, enabling the rapid interbank clearing and settlement of securities for cash. This can achieve “delivery versus payment” interbank systems where two parties trading an asset, such as a security for cash, can conduct the payment for and delivery of the asset simultaneously. Central banks exploring this include the Bank of Japan, Monetary Authority of Singapore, Bank of England and Bank of Canada.

Payment system resiliency and contingency – The use of distributed ledger technology in a primary or back-up domestic interbank payment and settlement system to provide safety and continuity in case of threats, including technical or network failure, natural disaster, cybercrime and others. Often, this use case is coupled with others as part of the set of benefits that a distributed ledger technology implementation could potentially offer. Central banks exploring this include the Central Bank of Brazil and Eastern Caribbean Central Bank.

Bond issuance and lifecycle management – The use of distributed ledger technology in the bond auction, issuance or other life-cycle processes to reduce costs and increase efficiency. This may be applied to bonds issued and managed by sovereign states, international organizations or government agencies. Central banks or government regulators could be “observer nodes” to monitor activity where relevant. Early implementation is being conducted by the World Bank with their 2018 “bond-i” project.

Know-your-customer (KYC) and anti-money-laundering (AML) – Digital KYC/AML processes that leverage distributed ledger technology to track and share relevant customer payment and identity information to streamline processes. This may connect to a digital national identity platform or plug into pre-existing e-KYC or AML systems. Central banks exploring this include the Hong Kong Monetary Authority.

Information exchange and data sharing – The use of distributed or decentralized databases to create alternative systems for information and data sharing between or within related government or private sector institutions. Central banks exploring include the Central Bank of Brazil.

Trade finance – The employment of a decentralized database and functionality to enable faster, more efficient and more inclusive trade financing. Improves on today’s trade finance processes, which are often paper-based, labour-intensive and time-intensive. Customer information and transaction histories are shared between participants in the decentralized database while maintaining privacy and confidentiality where needed. Central banks exploring this include the Hong Kong Monetary Authority.

Cash money supply chain – The use of distributed ledger technology for issuing, tracking and managing the delivery and movement of cash from production facilities to the central bank and commercial bank branches; could include the ordering, depositing or movement of funds, and could simplify regulatory reporting. Central banks exploring this include the Eastern Caribbean Central Bank.

Customer SEPA Creditor Identifier (SCI) provisioning – Blockchain-based decentralized sharing repository for SEPA credit identifiers managed by the central bank and commercial banks in the SEPA debiting scheme. This is a faster, streamlined and decentralized system for identity provisioning and sharing. It can replace pre-existing manual and centralized processes that are time- and resource-intensive, as seen in the Bank of France’s Project MADRE implementation.

Emerging economies may benefit most: Cambodia, Thailand and South Africa and others experimenting

The National Bank of Cambodia will be one of the first countries to deploy blockchain technology in its national payments system for use by consumers and commercial banks. It is implementing blockchain technology in the second half of 2019 as an experiment to support financial inclusion and greater banking system efficiency.

The Bank of Thailand and the South African Reserve Bank, among others, are experimenting with CBDC in large-scale pilots for interbank payment and settlement efficiency. The Eastern Caribbean Central Bank is exploring the suitability of distributed ledger technology (DLT) to advance multiple goals, from financial inclusion and payments efficiency to payment system resilience against storms and hurricanes.

“Over the next four years, we should expect to see many central banks decide whether they will use blockchain and distributed ledger technologies to improve their processes and economic welfare,” Lannquist said. “Given the systemic importance of central bank processes, and the relative freshness of blockchain technology, banks must carefully consider all known and unknown risks to implementation.”

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3 ways leaders can help employees embrace Artificial Intelligence

MD Staff

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Most people may be unaware how much Artificial Intelligence (AI) has become part of their lives. From GPS and predictive text on smartphones to search engines and customer service chatbots, AI is changing the way people live and work. AI involves the process of using algorithms to make sense of large amounts of data beyond human capacity to manage, with the potential to tackle more tasks than ever before imagined.

Researchers at Oxford University asked AI/machine-learning experts for their future predictions, and they said AI will replace truck drivers by 2027 and do a surgeon’s work by 2053. They said there is a relatively high chance AI will beat humans at all tasks within 45 years, and that AI could automate all human jobs by 2063.

AI is increasingly used in the workplace, including for productivity tracking and numerous HR functions. Virtual assistants use proprietary AI algorithms to identify and screen candidates.

Employees first using AI may have difficulty making this transition, according to director of research and thought leadership for Dale Carnegie Mark Marone, PhD. In his publication, Preparing People for Success in the Era of AI, Marone discusses issues employees encounter adapting to AI, and steps leadership can take to help employees prepare for working alongside machines.

Marone outlines three ways leaders can ensure employee success in embracing AI: instilling trust in organizational leadership; providing transparency for employees to understand what AI does; and increasing employee confidence in their own skills to adapt to AI.

Trust.

Employees may worry about the true purpose of using AI in their company. If a solid foundation of trust in leadership is already established, it’s more likely changes will be accepted positively. Trust is gained by leaders exhibiting honesty and consistency in what they say and do.

Without underlying trust, implementing AI could be perceived as a threat. Marone recommends assessing the level of trust employees have in leadership using tools like engagement assessments, pulse surveys and exit interviews. If the trust level is not optimal, leaders must improve their consistency of communication and demonstrate the organization’s stated values in deed as well as word. Building trust is vital to helping employees accept challenging transitions.

Transparency.

Related to trust is transparency. Employees must understand what AI is and how it will be used in their workplace. People often fear what they don’t understand. While employees may not comprehend every technical detail, leadership should explain the use of AI as clearly as possible.

Marone gives an example of employees’ willingness to accept an appraisal given by AI rather than a human supervisor. In their research, 62% of respondents were more willing to accept an AI appraisal if criteria for the appraisal were completely transparent. Without transparency, only 32% of respondents would accept that appraisal. Marone explains, “People want to be sure that AI is delivering decisions that are fair and in a way that can be explained.”

Transparency contributes to employees’ perceptions of fairness. In the survey, 63% of respondents expressed concern about human biases built into AI systems, such as the inappropriateness of using predictive power for HR applications. Marone cites the example of an AI algorithm determining potential hires based on current company leadership, which “may suggest the desirability of hiring more white males.”

Employees who trust the role of human leaders to provide AI oversight, and who perceive transparency in how AI is used, will more likely accept these new technologies.

Confidence.

Employees feeling threatened by technological advances may be insecure about their own skills to adapt. Marone found that what makes an organization more agile in the face of change is the ability of employees and leadership to adapt, learn and assess new information, ask questions and analyze situations. Agility in the age of AI requires soft skills that machines cannot replace: creativity, social skills and judgment.

With sufficient training and development of those soft skills, employees demonstrate increased confidence in accepting and using AI effectively.

It’s vital that organizations lay the foundation for employees to cope with technological change. With preparation, gains achieved by adapting new technology won’t be offset by losses in employee engagement. Preparing the workforce with the right attitudes, understanding and skills will make future changes more successful.

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Girls Don’t Code? In The Caribbean, They Lead Tech Startups

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Research shows that science, technology, engineering, and mathematics (STEM) are still male-dominated fields. According to the U.S. Department of Commerce, in 2011 women occupied less than 25% of STEM jobs. Automation and advancements in technology seem to penalize women: the World Economic Forum estimates that per every 20 jobs lost to the fourth industrial revolution, women will only gain one new STEM job. For men, there will be a new STEM job for every four lost.

Luckily, a growing number of women is pursuing STEM careers, as developers, coders, or even tech entrepreneurs. The success of these women not only creates jobs and promotes economic growth; it also inspires more and more women to look beyond conventional career roles and take full advantage of the new opportunities offered by the digital revolution.

Last month, in the Caribbean, women entrepreneurs swept all five top places in the second PitchIt Caribbean Challenge, a mobile-tech startup competition organized by the Entrepreneurship Program in the Caribbean (EPIC) and sponsored by the World Bank’s infoDev program and the government of Canada.

Here, these talented women talk about their journey to the finals.

Quickplate, Jamaica

For a long time, Monique Powell worked late hours. By the time she got home, she would have no choice than to order food for delivery. “I realized you were more or less limited to pizza,” she recalls. “There was no reliable way to order from different restaurants and have the food delivered.”

She found that many Jamaicans shared her frustration.

It didn’t take Monique long to reach for a web- or app-based solution. “My professional background spanned web development, e-commerce, and marketing. With this knowledge, plus my determination to make the business work, I’d be able to lead the team and get the company off the ground.”

After partnering with many of Kingston’s popular eateries, in 2016 she launched QuickPlate, a mobile app that promises to help people “get good food fast” from anywhere. Customers can easily pay for meals online and track their delivery status from their phone or computer.

She sees the irony of the scarcity of female tech entrepreneurs in an increasingly industrialized world. “I’m always excited when women stand out and shine in male-dominated fields,” she says. “There are more and more programs designed to introduce girls to coding and web development, and I can’t wait to see what the next generation of female tech entrepreneurs will come up with.”

The Interview JM, Jamaica 

“My parents were always trying to help someone find a job,” Angela Tait says. “As I grew older, they would ask me to review resumes or look for openings. Later, I started an informal job network to help match youth with entry-level jobs at small businesses. The struggles I saw on both sides, the job seekers’ and the small business owners’, eventually led to The Interview JM.” 

Angela’s company facilitates the recruitment process for both employers and job seekers by using “innovative and modern assessment/training tools to help clients leverage their strengths.” She plans to grow the business into something that can change the talent management landscape in the Caribbean.

Angela commands her company’s technology. She handles operations and strategy, as well as negotiations with software partners. This, she says, requires “an intimate knowledge of all technical processes and core software we use.”

“It’s important to have diversity when we are talking about solving problems, which is what tech innovation does most of the time. We’ve seen that women can do anything and everything, so I decided that 2016 would be my ‘year of yes.’ I registered for the PitchIt pre-accelerator and then the competition.”

Indetours App, Montserrat

Nerissa Golden always considered herself ‘a solutionist.’ In Montserrat, she has been looking for “ways to leverage our uniqueness in a way that preserves our identity but allows residents to make money from it.” Her team has built an app that will help taxi drivers and tour operators find travelers quickly and inexpensively.

With more than 17 years of Internet experience, Nerissa is used to the idea of women as mobile tech entrepreneurs. “I taught myself about web development. I code. In 2014, I did a Caribbean Girls Can Code campaign to feature a few of the women I know who do code and are using it to change lives,” she says. “Now I leave the coding to others but I try to keep up with what is changing.”

SKED, Trinidad & Tobago

For Kelly-Ann Bethel it all began in August 2016 at the TV contest ‘Planting Seeds’. Her $30,000 prize gave her the funding she needed to develop SKED, a business appointment-management app that allows consumers to book meetings with a wide range of businesses without having to make a phone call.

“I always loved technology businesses. Although I am not a developer myself, the scalability of tech was always attractive,” she says, highlighting that the gist of her business idea is “simpler appointment booking for the Caribbean.”

Kelly-Ann agrees that women are underrepresented in technology, “but that doesn’t negate the women’s ability to be awesome tech entrepreneurs. Although we were outnumbered at the beginning of this PitchIT competition, we still managed to win big! Girls don’t code? Really?”

She wears an impressive number of hats: “I am the quintessential go-getter: I do everything except for the actual tech. I know the vision for SKED, I am the product manager, business development lead, marketer, pitch maker, finance manager…”

In the first quarter of 2017, SKED will focus on finishing the beta stage before launching, as she says, “to the many businesses that are excited and have expressed interest in using the product.”

Kelly-Ann hopes to participate in an international accelerator and get enough funding to realize the vision.

D Carnival Scene, Trinidad & Tobago

In 2011, Ayanna St. Louis started to work on her idea of ‘a mobile carnival concierge’ to serve revelers at the carnival in Trinidad & Tobago. “I have always loved carnivals and took an interest in carnivals around the world,” she explains. “Being from Trinidad & Tobago – where the carnival is the best in the world – I have always found that most other carnivals in the Caribbean are lacking in elements of ‘completeness’ and ‘structure.’ ”

For PitchIt Caribbean, she competed her registration at the last minute, and she wasn’t quite ready with a ‘defined’ pitch. When she had to pitch, she says, “everything truly came from within. For the Q&A round, I answered truthfully — as if I were using the product — how it would impact my life positively.”

“I am no ‘techie’,” Ayanna confesses. Unlike several of the other winners, Ayanna admits that she focused primarily on a problem-solving idea, rather than a new technology. As for her next move, Ayanna is currently working on an application for another pitch event. 

This feature is an outcome of infoDev, a multi-donor program administered by the World Bank Group, with a focus on entrepreneurs in developing economies.

World Bank

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Technological Superiority at the Heart of China-US Confrontation

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The US defense and technology sectors have become genuinely worried about Chinese significant strides in the technological sphere. Various reports have over the past couple of weeks stated that the Chinese military and technology sectors are close to achieving parity with the US.

One such report, published several days ago by the Center for New America Security, stated that China now “appears increasingly close to achieving technological parity with US operational systems and has a plan to achieve technological superiority.”

In a way, the current confrontation between the US and China fits into the biggest struggle in history: a battle between sea and land peoples. China is more of a continental power than a sea one, while the US is clearly an oceanic country. The US, like its historical predecessors, be they ancient Greeks, medieval Venetian merchants, or British and French seafarers in the 19th century, has so far successfully managed to limit Eurasian powers from rising to a prime position in the major world continent.

But with China it is different. One simple example suffices to state a surprising development. Since about 1885, the United States has not had to face a competitor or even a group of competitors with a combined Gross Domestic Product (GDP) larger than its own. China surpassed the United States in purchasing power parity in 2014 and is on track to have the world’s largest GDP in absolute terms by 2030. In comparison, America’s Cold War adversary, the Soviet Union, was bogged down by a truly unsustainable economic system that ultimately crumbled under pressure in the 1980s. At the height of the Soviet power, its GDP was roughly 40% the size of the United States’.

As said, a guarantee to win the Cold War was the US’ technological and economic preeminence. This is still at the heart of today’s global competition. Both Washington and Beijing understand that bilateral trade issues are in fact disguised by a deeper rivalry which opens up in the technology and innovation sector.

It has always been the case that sea powers possessed much fewer human resources, but attenuated this problem with much larger technological advances in comparison with continental powers. What is worrying for the US, and this constitutes a fundamental shift in global history, is China’s ability as a land power not only to confront the Americans with a larger population pool, but also with a highly competitive technological sector.

Several moves made by the Chinese government in the past week show China’s massive technological prowess. According to state media, Beijing is allegedly creating a system to protect its technology. Exactly what this system is, is not clear, but it was suggested that the system will build a strong firewall to strengthen the nation’s ability to innovate and to accelerate the development of key technologies.

The Chinese also announced that they, like the Americans are considering restricting export of Chinese technologies abroad, primarily to the US. This follows similar US moves to restrict sales to Huawei Technologies and other Chinese tech firms on national security grounds.

Thus, there are major concerns as to how the US would be able to offset the Chinese geopolitical challenge. There has always been a simple understanding in the US ruling circles, and among strategists, that it is America’s technological edge which gives it fundamental superiority. If this is no longer the case, then the very foundation of the US grand strategy is at stake. US general Paul J. Selva, Vice Chairman of the Joint Chiefs of Staff, has warned that the Chinese military could reach technological parity with the United States in the early 2020s and outpace the Pentagon in the 2030s, if the US military doesn’t respond to the challenge.

The course is set for future global instability, where the Americans will be more worried and the Chinese more assertive in pursuing their goals. This does not necessarily mean that a military confrontation would ensue, but it is highly likely that both states might end up investing billions, if not trillions, to develop future technologies.

Author’s note: first published in Georgia Today

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