The disappearance of Jack Ma had Chinese characteristics. Yet the reasons behind it spoke volumes about the nature of money the world over.
As FT Alphaville wrote in January, it didn’t surprise us in the slightest that what lay behind Ma’s chastening was not just his big mouth, but the success of Alipay, one of two firms that has come to dominate China’s payments landscape. That success in electronic payments — and in the data collection and network effects that come with it — sparked talk that Ant Group could branch out into other avenues of finance and take on China’s government-controlled lenders by extending credit and selling other financial products, such as insurance.
Central banks’ supreme power lies in their capacity to control currency issuance. The flip side is that it comes with the responsibility to keep money sound — that is, valuable in the eyes of those who use it. Naturally the People’s Bank of China were going to become a little peeved when a tech billionaire as outspoken as Ma was wading onto its patch.
Yet China’s monetary policymakers are far from alone here. The creation and proliferation of money is political the world over. We’ve seen central bankers around the globe become so spooked by Facebook’s Libra — now Diem — idea that, despite its back-of-a-fag-packet design credentials, a load of them are now talking about issuing their own forms of state-backed digital money.
As Benoît Cœuré, of Bank for International Settlements, put it, what we’re likely to see play out over the next few years is an international sparring match over “the balance of power between government and big tech in shaping the future of payments and related data rights and control”.
So far the fightback from officialdom has focused largely on rolling out central bank digital currencies (more on which, here and here). But today the BIS has a paper out looking at another weapon in monetary guardians’ armoury — regulation.
One reason for taking a tougher regulatory approach is that the likes of Ant Group and their peers in other parts of the world face far fewer rules than the traditional incumbents. Another perhaps more significant reason is that Big Tech is by its nature designed to build on its data gathering capacity to enhance network effects.
Unlike the former, the latter is not a traditional competition problem per se. But the nature of how Big Tech operates means that we’ve seen market domination by one firm in sectors ranging from e-commerce to internet searches.
Clearly that’s not healthy in any economic sphere.
So what to do? One of the ideas suggested in the note, which carries a co-writing credit from the BIS’s general manager Agustín Carstens, is that you address the Big Tech threat in the same way that you tackle the traditional incumbents deemed too big, or too important, to fail. These so-called “macroprudential” (catchy, we know) policies, aimed at addressing what is known in the central bank lexicon as “systemically important financial institutions”, were put in place following the great financial crisis of 2008.
Here’s how the paper thinks they could be imposed on Big Tech (our emphasis):
Thus far, there have been limited regulatory actions in domains other than in competition. An exception is the revision of the regulation of financial holding companies (FHCs) in China towards requiring all companies holding two or more types of financial institutions (not necessarily including a commercial bank) that satisfy specific size thresholds to apply for an FHC licence.
The [PBoC] may also require the formation of an FHC in accordance with macroprudential regulatory requirements, even if the size thresholds are not met. FHCs are subject to capital requirements at the level of the holding company and the financial subsidiaries, as well as a capital replenishment mechanism and bail-in measures (eg transfer of equity). These rules are aimed at ensuring that the shock-absorbing resources of systemically important big tech subsidiaries are in place where they are needed. FHCs must also satisfy a number of other requirements on risk exposures and governance. FHCs are supervised by the [PBoC], which will establish regulatory information-sharing arrangements between it and other relevant regulators.
We’ll leave readers to decide how wise, or otherwise, the idea of policing Big Tech like a big bank is. What we want to focus on here is the degree to which global central banks are now looking to China for inspiration. The PBoC has already become the first major central bank to pilot a central bank digital currency. Now it’s ahead of the pack in reining in Big Tech with rules too.
When we wrote about the problems befalling Ant Group back in January, we also said that the sort of tussle Ma found himself in was likely to be repeated elsewhere in the world. If the BIS paper’s ideas get picked up by its membership, then the degree to which the global monetary agenda begins to ape that outlined by Beijing could be greater than even we had imagined.
We don’t see the head of a US behemoth disappearing from public view for months on end, but we would expect any arbitrage Big Tech might seek to gain over traditional financial players — and indeed the state itself — to be stamped out pretty quickly in the rest of the world too.
Related links
Breaking the Zuck buck | FT Alphaville series
A contest to control crypto is under way – FT
Global Gosbankification risk is now at orange – FT Alphaville
Is our money about to spout memories? – FT Alphaville
Source: Economy - ft.com
