©Victor Tonelli/OECD

Blockchain is a major technology of the 21st century

Like all new technologies, blockchain is controversial. Some people say that it will be the most significant breakthrough technology of the 21st century. Others are telling us that it is a technological illusion. All I know is that most people talking about blockchain understand nothing about blockchain.

In the course of the nearly three years that I have been Minister of the Economy and Finance, I have been listening to experts and talking to everybody connected to blockchain innovations in order to gain a proper understanding of this technology, and I have reached a very simple conclusion. Blockchain is a major technology for the future of France, Europe and the rest of the world.

This is why I have, alongside the president of France, defined a clear blockchain strategy—something that was lacking in France just three or four years ago. I would like to thank everybody who helped us to develop this strategy: experts, business leaders, engineers, and governor Jean-Pierre Landau.

I have entrusted to Jean-Pierre the difficult mission of helping us to see this technology clearly and to provide answers to how we can organise and regulate it. Again, I believe in blockchain. Like any politician, I can be mistaken, but I am personally convinced that blockchain is the future, and will be a major technology of the 21st century. We need to take it seriously, to organise it and to make sure that the OECD’s member countries lead the way in its use.

My first observation is that it could potentially transform a certain number of activities, which must be proof of its effectiveness.

One such activity is financial services. Financial markets are based on a very complex architecture—marketplaces, clearing houses, settlement systems—and have just one purpose: ensuring the security of financial transactions. And blockchain technology can one day replace these highly complex infrastructures. It is a very promising technology for these financial services because it would allow an extraordinarily cumbersome and complex system of transaction certification to be replaced by a blockchain protocol. The protocol would be a complete, decentralised solution allowing people to carry out transactions, record the transactions and store the value connected to the transactions. It is no coincidence that a large number of fintech firms are developing this technology.

You are aware of my determination to make French fintech firms the best in the world. When I look at the work of LiquidShare, for example, a French start-up, I am convinced that the move from a centralised financial system to a decentralised one will happen much faster than people expect.

This is also true of the services sector. Because blockchain is not limited to the financial sector, as I often hear people say. It allows users to draw up smart contracts that can revolutionise the insurance sector. These contracts allow some tasks to be automated on behalf of consumers. For example, payments to policyholders could be made automatically in the event of a climate disaster. I think that the automatic activation of insurance contracts in the case of climate disaster, instead of a series of decisions authorising payments, represents a real step forward for policyholders.

Blockchain can also transform the manufacturing industry. I would like to see this second Forum share the message that blockchain technology is not limited to services: it is already operational in industry, in manufacturing and in industrial production. I believe it will transform all sectors and all processes of industrial production. Let us take the example of the food industry. The key issue here is product traceability. And blockchain provides an effective, incontestable solution for the total traceability of products throughout production and supply, all the way to the consumer, guaranteeing total confidence in the safety of the products. This is an absolutely huge step.

With all of this, we need a strategy. Now that the use of blockchain is spreading to all sectors of economic activity, from financial services to insurance through, and I insist on this, manufacturing, we must follow a strategy that allows us to control and regulate the technology.

One of the major democratic challenges of the 21st century will be to calibrate the control and regulation of technology according to our values. Because it is the democracies that determine the value of the technology and not the technology that determines our values. This point is absolutely decisive if we want the advances in artificial intelligence, driverless cars and elsewhere to be accepted by the public.

Turning to the technology itself, our research and training centres, such as INRIA, the national research institute for digital sciences, and the École polytechnique, have begun to teach blockchain technology. It is the vitality of this research that has allowed us, in France, to create an innovation ecosystem of particularly high quality. There are over two hundred French businesses now developing blockchain projects. All our major groups are experimenting with blockchain in their services and will soon be ready to disseminate the innovation in their sectors.

This will naturally take a certain amount of investment, and the French government has decided to support innovation in this cutting-edge technology, with the deeptech plan by BPI France and the fund for breakthrough innovation. In the next few weeks, in connection with the productive agreement that the French President has entrusted me with, I will have the opportunity to look again at the investment requirement in France and Europe. This will be a key to the current century. The reason that we in Europe do not have the digital giants that exist in the United States and in China is that we do not have enough financing. We have the technology but we do not have the financing required to grow our start-ups, turn them into medium-sized companies and, ultimately, into digital giants. We can no longer stand by and watch as our start-ups are bought up by foreign digital giants, who walk away with the technologies that cost us so much in investment. Creating a union of capital markets, increasing the investment capital available in Europe will be an important key to our technological independence in the near future. Once again, I will have other opportunities to return to this subject. But tonight in Helsinki, at the meeting of finance ministers in the Eurozone, I will remind my counterparts that technology can only develop in Europe if it is given the required financing and that the creation of a union of capital markets in Europe is an absolute priority.

In addition to ensuring that we master this technology, we also need to create a legal framework for blockchain. Let me say again that we cannot have this technology unless it is governed according to our democratic principles. Technology does not generate our values: it is our values that govern our technology. Blockchain raises a fundamental question, because it challenges our idea of control and our idea of private property. This is the real challenge for us today. Where we used to have centralised private property, blockchain gives us property decentralisation. If we do not go right to the heart of the problems raised by new technologies, even the philosophical ones, we will not manage to develop them within a framework that is reassuring for all citizens and protects all citizens. The control of blockchain is essentially decentralised—this is the very principle of the chain. Property is the result of collective validation, whereas in the past, property was the result of a record entered in a single register.

This is why we were the first nation in Europe, in 2017, to allow, under our financial laws, the recording and trading of some financial securities using a shared, secure electronic recording system. In the Pacte law that I championed last year and which has been in force since May 2019, we have set out a new framework which secures the issue of tokens and other digital assets on a blockchain. This unique new framework was commended at the last meeting of the IMF. It was inspired by the issue of financial securities, but adapted to the specific needs of blockchain technology. Issuers of digital assets will be able to request a permit or a licence to certify the quality of the tokens issued. They may request them, but there is no obligation to provide them. Accreditation has been introduced for all parties on the cryptocurrency markets: brokers, trading platforms, custodians, digital asset managers, investment advisors. This accreditation includes a mandatory section, concerning the fight against money laundering terrorist financing, and an optional section, concerning the rules applicable to the exercise of their specific activities. So what does that mean? It means that when it comes to transaction security, some things are non-negotiable: namely the fight against money laundering and terrorist financing. For legal activities, however, the framework offers more latitude. The French Financial Markets Authority will then be able to draw up a white list of accredited projects and market players. So it is perfectly possible to combine regulation and new technologies, transaction security and blockchain technology. They are in no way incompatible.

There is no reason for libertarian ideals to win the control of new technologies. I see no reason why these technologies should necessarily be driven by libertarian ideology. An ideology that rejects regulation and contests the role of the State! I think that we can have strong States and powerful new technologies. These things are in no way incompatible. What if the price to pay for the emergence of new technologies is the destruction of the nation state? Then it will happen without France and without the European States. We, in Europe, consider that we can have both mastery of new technologies and respect for the authority of the State.

Let us return to our blockchain strategy, because it also includes an accounting and taxation component. Here again, you can see that behind this technology lies a set of political decisions of import for the twenty-first century. There is no libertarian ideology, but respect for the authority of the State working for the common good. There is no total deregulation on the grounds that we are dealing with new technology, but appropriate regulation based on an opt-in.

But there is also a form of taxation that takes account of the new creation of value. We are not going to continue to heavily tax the manufacturing industry with its physical footprint and then decline to tax the virtual activities that create value. This would be unfair and completely ineffective from the point of view of the financing of our public assets. We are therefore in the process, with the full support of the OECD, of defining the taxation of the new century. As you know, this is one of the firm commitments made by the French President and by France in the last nearly three years. Our determination to reach an international agreement at the OECD on digital taxation and minimal taxation is total. Both are vital to fair, effective taxation in this century.

First, minimal taxation. It is vital that we reach agreement on a minimum level of corporate taxation. After all, our American friends have managed to do it. Their GILTI provision allows for a minimum level of taxation of just over 13% to prevent big multinationals avoiding paying tax. The IMF recently sounded the alarm, telling us that there were big companies producing goods where production costs were lowest and then moving their profits to where the taxes were lowest or not even existent. Nobody can accept this. So we need minimum taxation. And with our partners in Germany and the members of the G7, we are determined to erect this pillar of the new international taxation of the twenty-first century.

And now, digital taxation. Our goal has never been to stigmatise this or that company. It has never been to stigmatise this or that country. It is to fill a fiscal void. Today, there are companies generating billions of euros in sales in a territory, who have tens of millions of customers in France or the single European market, and who pay a derisory tax bill for the simple reason that they have no physical operations on that territory. If don’t have any physical operations, you don’t pay taxes. But tax is linked to the profits that you make. So it is logical, necessary and fair that we introduce digital taxation.

We have spent two years trying to persuade our European partners of this and we have almost got there. Four States continue to voice their objections. And my conclusion is simple. It is time for us to adopt tax decisions in Europe based on a qualified majority rather than unanimity. This will allow us to move more quickly. If we fail to find agreement within the EU, we have set up a national tax that will be applied from 1 January of this year—2019.

But going back to the G7, we have also reached an agreement between our American partners and the French president, over very straightforward changes. As soon as there is an agreement on digital taxation here at the OECD, this international agreement will replace France’s national tax. But until then, the national tax will be applied. I think that this is a strong incentive to forge ahead with the work of the OECD. And to reach an agreement on the international taxation of digital business in the first half of 2020. This is at any rate, our ambition and our determination.

I have talked at length about this subject of tax, but this is because people want to see results in this area. They are not against paying their taxes, whether private or professional. But they don’t like other people not to pay them. And I can understand that. They have never complained about paying taxes to fund schools, day-care centres, hospitals and public services in their country. But they do object when they find out that the people making the biggest profits are not paying them.

As I mentioned earlier, blockchain also raises some difficult accounting and taxation questions. The skyrocketing value of some crypto-currencies, such as Bitcoin, has allowed some investors to generate substantial capital gains. But because market places are so opaque, the poor traceability of transactions between cryptocurrencies has in some cases led to capital gains not being taxed at all. Again, how can we explain that capital gains on cryptocurrencies worth many hundreds of thousands of euros completely escape taxation, while the gains generated by an investment in a traditional company can carry risks and are subject to taxation?

We have therefore introduced a taxation framework that is designed for cryptocurrencies and apprehends the value created at the moment those cryptocurrencies are converted into standard currency, while exempting transactions between cryptocurrencies. We hesitated for a long time over whether to tax transactions between cryptocurrencies. But if you tax them, suddenly you are taxing hundreds of thousands of transactions, sometimes completely inefficiently and in a completely unbalanced way. So we think that the right moment to tax is the moment at which the cryptocurrency is converted into standard currency. We think this strikes the balance that will promote the development of the sector while ensuring fair taxation.

In the same way, value-added tax will only be due once the cryptocurrency is used for the acquisition of goods or services. I think that the proposal of the French government is the right one. We have applied it in France, and today I am proposing it to the OECD—because I would like to see the OECD also begin to examine how to align models for the taxation of cryptocurrencies. Tax models need to be the same for the development of cryptocurrencies so that we have the same regulatory arbitrage strategies across the globe.

Finally, I am coming to my last point, there needs to be a balance between new technologies and respect for national sovereignty. You will remember what I said about my opposition to libertarian ideals and the need to respect the common good and state sovereignty. Facebook’s proposed Libra currency runs directly into this problem. When the finance ministers and central bank governors of the G7 met at Chantilly, with the secretary-general of the OECD, Angel Gurría, in attendance, we were unanimous in voicing our concerns over the risks posed by Libra. Libra would be a global currency held by a single entity with over two billion users worldwide. What is at risk is the monetary sovereignty of states themselves. The monetary sovereignty of our nations. In those countries with weak currencies—I won’t list them, but there are many—Libra would replace sovereign currencies and threaten State independence.

This potential privatisation of a currency raises the risk of abuse of a dominant position. It raises risks related to sovereignty. It raises risks to consumers and businesses. And it also raises a systemic risk. Given that there are two billion consumers, any flaw in the working of the currency or the management of its reserves could threaten considerable financial disorder. Furthermore, I do not understand why we would have spent all these years being so careful to prevent any use of currency for laundering or terrorist financing, if then a digital currency like Libra were able to escape these obligations. These concerns over Libra are serious. I want to be very clear about this. In these conditions, we cannot authorise the development of Libra in Europe.

But this project does have the advantage of highlighting some of the problems involved in financial transactions. Transaction costs are too high between countries, especially in Europe. It is not acceptable that even the most basic financial operations should be so drawn-out and complicated.

There are, therefore, two areas in which I think that we need to move fast. First, the financial sector can provide us with answers. I would like to see the financial sector, especially the banks, suggest improvements to the quality of their international payment systems and ways to reduce the cost of their international payments. I know that some banks are ready to do this, and I would ask them to speed the process up so that they can make proposals in the coming months.

Second is the idea that I launched a few days ago and which I have discussed with the European Central Bank President Mario Draghi and his successor Christine Lagarde. It is the possibility of launching a public digital currency. I propose that we start work on the proposed public digital currency very quickly. We could explore several options: I know that there are many widely varying possibilities. Some faster than others. I would like us to be in a position, when we reach the meetings of the finance ministers in Washington DC in mid-October, to launch this task, and I would like us to have concrete projects within a few months. I believe that the OECD has a major role to play in this project.

Dear Angel, Ladies and Gentlemen, these are the various discussion points relating to blockchain technology that I wanted to share with you this morning. I am excited about this development. First, because I believe in the technology. And also because, as I think you gathered from my remarks, blockchain technology is a way for us to understand the democratic hurdles that lie before us. Our planet is faced with major challenges, as President Macron is always reminding us. Multilateral solutions are the only way forward. There is a climate challenge that only all nations united will be able to overcome. There is a demographic challenge which will also require us to combine our efforts to find effective solutions. And there is this major technological challenge that is also a challenge to sovereignty. Who will command the technology of artificial intelligence and who will not?

And, last of all, there is a political challenge. How can we ensure our control over the technology and not the control of the technology over us? This is a question raised by blockchain. Digital currency raises this question. Artificial intelligence and all these developments raise this question. And France’s role will always be to stress that people must control technology, according to their values, and it is not for technology to impose its values on us.

*This is an OECD translation extracted from a speech by Bruno Le Maire, French Minister of the Economy and Finance, delivered at the OECD Global Blockchain Policy Forum, OECD, Thursday 12 September 2019

Watch the speech in French at https://oecd.streamakaci.com/blockchain2019/. The French text is available at www.observateurocde.org

Visit www.oecd.org/finance/oecd-blockchain-policy-forum.htm

A short 650-word extract is published in the OECD Observer print edition, No 319 Q3 2019.

©OECD Observer, No 319 Q3 2019

Economic data

GDP growth: -9.8% Q2/Q1 2020 2020
Consumer price inflation: 1.3% Sep 2020 annual
Trade (G20): -17.7% exp, -16.7% imp, Q2/Q1 2020
Unemployment: 7.3% Sep 2020
Last update: 10 Nov 2020

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