Management of public finance and economic development is the art by which a nation improves the economic, political and social well-being of its people. The research paper starts from the reality that finance plays an important role in each economy. Nowadays, finance has to manage and adapt to Digital Era. The purpose of this paper is an attempt to identify and encourage managing financial statements through artificial intelligence using XBRL and Blockchain. In many countries, financial and tax authorities encourage the adoption of eXtensible Business Reporting Language (XBRL) and Blockchain. XBRL enable business to generate their required reporting information directly from their financial data. Blockchain technology continues to grow and it is being used in more and more business sectors. Finance, accounting and auditing has been identified as areas that could greatly benefit the distributed registry and other features of Blockchain. The main benefits generated by these innovative tools include reducing the risk of error (especially human error); low risk of fraud; system automation, big data analysis, huge cost savings (by increasing the efficiency and decreasing in errors), increased reliability in financial reports, and reduced workflow. The research paper comes to present how artificial intelligence combine financial information with tech capabilities, accelerate digital transformation of finance and accounting, and may create a more safety business and economic environment, reducing human error. We have to manage our work and time differently. We are living in a digital and intelligent era, where machines take over repetitive, time-consuming and redundant tasks, giving finance professionals more time to approach higher level and more lucrative analysis and research.
Purpose This paper aims to examine the risks associated with smart contracts, a disruptive financial technology (FinTech) innovation, and assesses how in the future they could threaten the integrity of the global financial system. Design/methodology/approach A qualitative approach is used to identify risk factors related to the use of new financial innovations, by examining how over-the-counter (OTC) derivatives contributed to the Global Financial Crisis (GFC) which occurred during 2007 and 2008. Based on this analysis, the potential for similar concerns with smart contracts are evaluated, drawing on the failure of The DAO on the Ethereum blockchain, which involved the loss of over $60m of digital currency. Findings Extensive use of bilateral agreements, complexity and lack of standardization, lack of transparency, misuse and speed of contagion were factors that contributed to the GFC that could also become material concerns for smart contract technology as its adoption grows. These concerns, combined with other contextual factors, such as the risk of defects in smart contracts and cyberattacks, could lead to potential destabilization of the broader financial system. Practical implications The paper’s findings provide insights to help make the design, management and monitoring of smart contract technology more robust. They also provide guidance for key stakeholders on proactive steps that can be taken with smart contract technology to avoid repeating the types of oversights that contributed to the GFC. Originality/value This paper draws attention to the risks associated with the adoption of disruptive FinTech. It also suggests steps that regulators and other key stakeholders can take to help mitigate those risks.
Basil Guggenheim, Sébastien Kraenzlin, Christoph O. Meyer
We use unique individual bank-to-bank repo transaction data to empirically assess the efficiency of the existing Swiss financial market infrastructure (FMI) for executing delivery versus payment transactions. This approach enables us to identify its current benefits and drawbacks and discuss how these could be addressed and to what extent distributed ledger technology (DLT) could provide a remedy. We find that the fastest settlement time for repo transactions is 12 seconds, but that settlements are often delayed by more than 10 minutes due to the lack of collateral availability. We conclude that the cross-border availability of securities needs to be addressed by either improving interoperability of existing infrastructures or using new technologies.
In the first chapter, To Pool or Not to Pool? Security Design in OTC Markets with Vincent Glode and Christian C. Opp, we study security issuers' decision whether to pool assets when facing counterparties endowed with market power, as is common in over-the-counter markets. Unlike in competitive markets, pooling assets may be suboptimal in the presence of market power --- both privately and socially --- in particular, when the potential gains from trade are large. In these cases, pooling assets reduces the elasticity of trade volume in the relevant part of the payoff distribution, exacerbating inefficient rationing associated with the exercise of market power. Our results shed light on recently observed time-variation in the prevalence of pooling in financial markets. In the second chapter, Selling to Investor Network: Allocations in the Primary Corporate Bond Market, I develop a model of the primary market for corporate bonds, in which an issuer optimally chooses an issuance price and allocations to investors based on their trading connections in the secondary over-the-counter market. Expected secondary market liquidity, which depends on the structure of the trading network in this market, determines investors' demands in the primary market and, in turn, the issuer's revenues. I show that trading by less connected investors has a relatively high negative impact on expected secondary market liquidity and disproportionately reduces the demands of all investors in the primary market. As a result, the issuer can increase her profits by restricting allocations of new bonds only to more connected investors. This explains the commonly observed exclusion of small institutional investors from the primary market, which is often coupled with seemingly underpriced bonds. In the third chapter, Initial Coin Offerings as a Commitment to Competition with Itay Goldstein and Deeksha Gupta, we model Initial Coin Offerings (ICOs) of utility tokens, which are increasingly used to finance the development of online platforms where buyers and sellers can meet to exchange services or goods. Utility tokens serve as the sole medium of exchange on a platform and can be traded in a secondary market. We show that such a financing mechanism allows an entrepreneur to give up monopolistic rents associated with the control of the platform and make a credible commitment to long-run competitive prices. The entrepreneur optimally chooses to have an ICO, rather than operate as a monopolist, only if future consumers of the platform participate in financing. ICOs, therefore, endogenously require crowd-funding to be viable.
Smart contracts are one of the business and organizational areas where blockchain technology is thought to have a major potential impact.Smart contracts can be a secure method to technologically ensure that a certain action is followed by other agreed-upon transactions.Payment transactions for contract bindings might be the first go-to thought in this regard, also considering that blockchain technology's most significant impact until now has been through cryptocurrencies.And yet, so many other aspects of organizational processes rely upon transactions between different organizational units.There might not be a flow of currencies, and the value driver might be the flow of correct, on-time information.Such is the case when patients are released from a hospital to the organizations that provide home care in the Norwegian health care system.The health care professionals in home care need the right information to be able to provide the necessary care and medication.There is an ongoing ITprogram in the Norwegian health care system called AKSON, with the goal of one patientone journal.This article sheds light on opportunities regarding the potential use of smart contracts-technology in the Akson program, for information sharing when patients are transferred from hospital to home-care.
Publicly traded securities generally are held by investors in securities accounts with intermediaries such as stockbrokers and central securities depositories — intermediated securities. For many investors this is the only practical means of holding and dealing with securities. These intermediated holding systems (IHSs) impose a variety of risks and costs. Investors are exposed to intermediary risk (default or insolvency of an intermediary holding securities) as well as impediments to the exercise of rights such as voting and asserting claims against securities issuers. The nontransparency of IHSs imposes other social costs, such as obstacles to anti-money laundering enforcement. The emergence of FinTech and the potentially disruptive effects of distributed ledger technology (blockchain) now present realistic opportunities for reforms of securities holding infrastructures that would increase transparency and allow investors to hold securities directly on the books of their issuers.
This article proposes a “New Platform System” (NPS) for the direct holding of securities that would connect issuers and investors and also connect both with trading and settlement systems (which would remain intact, at least for now). Unlike other recent transparency and direct holding proposals, the NPS would cover both equity and debt securities and would flexibly accommodate beneficial aspects of current IHSs, such as margin lending, securities lending, and rehypothecation. The article presents a broader menu of problems that the NPS could resolve. The NPS addresses the probable objections that the intermediaries who benefit from the status quo would make to any transparency or direct holding proposals. Disintermediation likely would require regulatory intervention by the SEC in the United States. By offering reforms that would minimize the disruption of current market practices, the NPS could encourage intervention and blunt opposition. It also could provide a “primordial soup” for future, more extensive reforms of trading and settlement systems.
Alexander Bechtel, Agata Ferreira, Jonas Groß, Philipp Sandner
Distributed ledger technology (DLT) hasDistributed ledger technologies (DLTs) the potential to address long-standing industrial challenges, remove frictions, build trust, and unlock new value across businesses and industries. It enables decentralization, the immutability of data, transparency, and the automation of business processes. Thereby, it creates a multitude of use cases ranging from energy and manufacturing to mobility and logistics. However, a digitized economy based on DLT can flourish only if it does not merely enable the exchange of assets, goods, and services but also the exchange of money. In other words, there is a need for a payment solution that is compatible with DLT-based decentralized networks and enables transactions denominated in euro. This is particulary relevant in the currently evolving geopolitical environment.
We examine how liquidity affects cryptocurrency market efficiency and study commonalities in anomaly performance in cryptocurrency market. Based on the unique features of cryptocurrencies, we build a model with anonymous traders valuing cryptocurrencies as payments for goods and investment assets, and find that decreases in funding liquidity translate into lower asset liquidity in the cryptocurrency market. Empirically, we observe that many widely recognized stock market anomalies also exist in the cryptocurrency market, though some have opposite long/short legs. We also find supportive evidence that a decrease in cryptocurrency liquidity enhances anomaly returns while preventing the cryptocurrency market from achieving efficiency.
Bank for International Settlements, Raphael Auer, Stijn Claessens, Bank for International Settlements
Cryptocurrencies are often thought to operate out of the reach of national regulation, but in fact their valuations, transaction volumes and user bases react substantially to news about regulatory actions. The impact depends on the specific regulatory category to which the news relates: events related to general bans on cryptocurrencies or to their treatment under securities law have the greatest adverse effect, followed by news on combating money laundering and the financing of terrorism, and on restricting the interoperability of cryptocurrencies with regulated markets. News pointing to the establishment of specific legal frameworks tailored to cryptocurrencies and initial coin offerings coincides with strong market gains. These results suggest that cryptocurrency markets rely on regulated financial institutions to operate and that these markets are segmented across jurisdictions.
Since 2007, the Finnish banking sector has undergone a transformation that has been affected by economic fluctuations, tightening regulation and digitalisation. A new technology architecture solution, Distributed Ledger Technology has emerged since and received a lot of attention. Technology has been described as the biggest revolution since the commercialization of internet. Distributed Ledger Technology have been expected to be highly disruptive especially in the banking sector. The aim of this study is to outline the effects of Distributed Ledger Technology on the Finnish banking sector and its future development. The research is empirical and uses the qualitative Delphi research method to outline the future of the banking industry. The research approaches Distributed Ledger Technology as well as its implications through Christensen’s Disruptive Innovation Theory. The study presents the different definitions for the Distributed Ledger Technology and emphasizes the lack of a coherent universal definition, which complicates the research of the technology. According to the study, Distributed Ledger Technology has major implications for the future development of the Finnish banking sector. The technology is introduced to influence the development of market structure and competition environment, as well as drive banks to review their business models as traditional revenue streams in banking sector are expected to change. The technology is proposed to improve efficiency and change cost structures of banks and thus have a direct strategic impact on the operators in the Finnish banking sector over the next decade.
Abstract This paper elaborates on the blockchain-based identity authentication and intelligent credit reporting method. The technologies of multidimensional authentication, multifactor weighted score calculation, security threshold, distributed ledger, smart contract and encryption algorithm are proposed to realize dynamic identity security authentication and intelligent risk control. The user behaviour analysis system, real-time risk identification system and intelligent risk prevention system are constructed. The multidimensional credit data collection is realized through blockchain distributed nodes. The distributed ledger of credit reporting, intelligent pricing of assets and automatic credit rating of users are proposed. It realizes credit reporting system and service based on multidimensional data, distributed ledgers, and smart contracts.
This article deals with the emerging topic of stablecoins, which is an umbrella term used to refer to a stable cryptocurrency. The authors shall address a number of questions, namely: what are stablecoins; when are they used; what are the most common characteristics of stablecoins. The authors shall also present a taxonomy of stablecoins based on the mechanism employed to stabilize their value. A more thorough exploration of the market for stablecoins will follow, with particular attention given to the controversies surrounding the most popular of stablecoins – Tether.
Abstract This paper aims to model the joint dynamics of cryptocurrencies in a nonstationary setting. In particular, we analyze the role of cointegration relationships within a large system of cryptocurrencies in a vector error correction model (VECM) framework. To enable analysis in a dynamic setting, we propose the COINtensity VECM, a nonlinear VECM specification accounting for a varying systemwide cointegration exposure. Our results show that cryptocurrencies are indeed cointegrated with a cointegration rank of four. We also find that all currencies are affected by these long term equilibrium relations. The nonlinearity in the error adjustment turned out to be stronger during the height of the cryptocurrency bubble. A simple statistical arbitrage trading strategy is proposed showing a great in-sample performance, whereas an out-of-sample analysis gives reason to treat the strategy with caution.
We assess how the cost structure of cryptocurrency mining affects the response of miners to exchange rate fluctuations and the immutability of cryptocurrency ledgers that rely on proof-of-work. We show that the amount of mining power supplied to currencies that rely on specialized hardware, such as Bitcoin, responds less to adverse exchange rate shocks than other currencies respond to such shocks, a fact that is instrumental to avoiding double-spending attacks. The results may change if mining equipment used for one cryptocurrency can be transferred to another. For smaller currencies with low exchange rate correlation, transferability eliminates the protection that fixed costs provide. Our results weaken doomsday predictions for Bitcoin and other cryptocurrencies with declining block rewards. This paper was accepted by Bruno Biais, Special Section of Management Science: Blockchains and Crypto Economics. Supplemental Material: The data files are available at https://doi.org/10.1287/mnsc.2023.4901 .