Category Archives: Fintech International

Hawaii launches state-initiated digital currency sandbox

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Micky | Ali Qamar | March 21, 2020

Hawaii - Hawaii launches state-initiated digital currency sandboxThe State of Hawaii has recently introduced a pilot program dubbed as the ‘Digital Currency Innovation Lab’ aimed at being a ‘testbed for innovation in the digital currency space.’

On March 17, Hawaii’s governor office revealed that the state’s very first state-initiated blockchain and cryptocurrency incubator is in the works.

This initiative is in collaboration with three government agencies:

  • Department of Commerce and Consumer Affairs (DCCA)
  • Hawaii Technology Development Corporation (HTDC)
  • Division of Financial Institution (DFI)

See:  10 ways regulators need to change in 2020

The main aim of the project is to assist digital currency issuers to do business in Hawaii without acquiring any sort of money transmitter license in the course of the effective period of the pilot program. The sandbox will remain in operation for the next two years.

Furthermore, the program outlines three objectives:

  • Create economic opportunities for Hawaii and foster early adoption of cryptocurrency
  • Offer consumer protection and provide guidance to crypto entrepreneurs
  • Provide data to shape crypto legislation in the state

Sandbox participants protected against unlicensed regulation

Iris Ikeda, Commissioner of Financial Institutions, highlighted that the DFI has issued a “no-action message” against unlicensed money transmission activities. This only applies, however, to crypto entrepreneurs accepted to the pilot program.

The purpose behind this action is to prevent regulatory recourse for those companies working under the sandbox who might be considered as unlicensed from regulatory authorities.

However, DFI emphasizes that other state and federal laws are still in effect, and participants of the sandbox are still subject to criminal and consumer protection laws.

See:  How blockchain regulations will change in 2020

To be successfully admitted to the program, companies must demonstrate that they have the needed capital, as well as the financial and technical expertise to conduct business in Hawaii. Each applicant will be “carefully reviewed to ensure that Hawaii’s consumers are protected.”

The application period runs from March 17 to May 1, 2020.

 

Hawaii: ‘digital currencies as a transmission vehicle of the future’

Ikeda further added that the DFI is leveraging its state authority to provide a reliable and innovative platform to introduce digital currency in the state.

Hawaii sees digital currencies as the future, and the results of the sandbox will be utilized to develop future legislation for digital currencies in the state.

“By acknowledging digital currencies as a transmission vehicle of the future, we will be able to craft legislation that is conducive to its development in Hawaii,” adds Ikeda.

See:  Bank of Canada Speech: Money and Payments in the Digital Age

According to Len Higashi, acting executive director of HTDC, the sandbox will greatly aid in making Hawaii an “early adopter” of cryptocurrencies. She states:

“By spearheading the Digital Currency Innovation Lab, Hawaii can position itself on the forefront of financial technology and potentially, reap the economic benefits that accompany the leadership stance taken.”

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NCFA Jan 2018 resize - Hawaii launches state-initiated digital currency sandbox The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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Fintechs getting a boost from coronavirus outbreak

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American Banker | Penny Crosman | March 18, 2020

digital mortages - Hawaii launches state-initiated digital currency sandboxThe coronavirus pandemic could be devastating for many companies, but it's also shining a spotlight on the power of fintechs. They seem to be responding to the sudden challenge, though uncertainties lie ahead.

The virus-driven moratorium on travel and the trend of companies encouraging people to work from home are changing the way people behave and communicate, and some of these changes could become permanent.

“The behaviors that people can execute from their living room or from their den are going to grow, and behaviors that require face-to-face interaction or getting out into the community are going to diminish,” said Nigel Morris, managing partner of QED Investors and a co-founder of Capital One. “What does that mean? You should have greater mobile apps and digital adoption in general. If I had been holding off on signing up for PayPal, for instance, I might just do that.”

Fintechs that help people do things remotely, like communicate about work, apply for a mortgage or make electronic payments, appear to be thriving, at least so far.

Digital mortgages

The digital mortgage software provider Blend, which has 230 bank clients, has also seen spikes in usage.

Each business day since March 4, the volume of refinance applications running through Blend has been up 1500% to 2000% from the same days last year. Most days, the company has also seen an 85% to 95% increase in mortgage purchase applications from the same days last year. With these increased volumes, the entire Blend platform sees between 15,000 and 20,000 applications per day and is processing daily loan values as high as $8 billion.

See:  10 FinTech Influencers to Follow if You’re Into Digital Lending

Bank and credit union clients have been telling the vendor that their volumes are spiking, but that using an online application helps them handle increased demand better than forcing customers to call an 800 number and wait on hold.

Timothy Mayopoulos, president of Blend, said the coronavirus is creating an additional sense of urgency for financial institutions that may have been on the fence about investing in digital mortgage technology before.

“But there has been interest in digital technology for lots of other reasons before and will continue to be,” he said.

Another mortgage tech vendor, Black Knight, has not seen a change in behavior since the coronavirus outbreak.

“Adoption of our digital mortgage tech continues to be strong, but doesn’t appear to be driven specifically by this as of yet,” a spokesperson said.

Julian Hebron, founder of the consultancy The Basis Point, said that banks and other lenders' digital mortgage projects are on hold as they cope with an "avalanche of new refi production as well as hedging and other financial risk that comes with it. Consumer, salesforce and loan production systems in place will be used until this production spike and associated management priorities subside. Then banks and lenders will resume their digital visions to improve customer and employee experience."

Contactless payments

Mobile and contactless payments are becoming more popular as people spurn physical stores for ordering by smartphones, and amid heated debates about whether people can become infected with coronavirus by touching cash.

“We know that money changes hands frequently and can pick up all sorts of bacteria and viruses,” the spokesperson for the World Health Organization told The Telegraph recently. “We would advise people to wash their hands after handling bank notes, and avoid touching their face. When possible it’s a good idea to use contactless payments.”

The mobile and online payment provider PayPal had a good fourth quarter, though the coronavirus outbreak started Dec. 1; it generated 13.3% higher net income than in the third quarter.

See:

"PayPal is continuously growing," said Kryptoszene analyst Raphael Lulay. “The segment of online payment services is very competitive. Nevertheless, survey data shows that PayPal is in a significant lead. The group is also less affected by the coronavirus pandemic, among other things. PayPal is less dependent on advertising money than, for example, Facebook and Google.”

PayPal itself is cautious about its propects through the pandemic. It recently lowered the guidance of 15% revenue growth it had provided on Jan. 29.

“PayPal's business trends remain strong; however, international cross-border e-commerce activity has been negatively impacted by COVID-19,” the company said in a Feb. 27 press release. “We currently estimate the negative impact from COVID-19 to be an approximate one-percentage-point reduction, on both a spot and foreign currency-neutral basis, to PayPal's year-over-year revenue growth for the first quarter.”

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NCFA Jan 2018 resize - Hawaii launches state-initiated digital currency sandbox The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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The Cash Crisis: Why America’s financial plumbing has seized up

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The Economist | March 21, 2020

cash crisis in america - Hawaii launches state-initiated digital currency sandboxCentral-bank action is failing to stem the rout

HOUSEHOLDS ARE frantically stocking up on essentials such as loo roll. But in financial markets, the staple that no one can do without in times of stress is cash—the flushing mechanism of the world economy. In theory, it should never dry up; money can be printed.

When firms are desperate for cash it puts a potentially devastating strain on the plumbing of the global financial system.

That is why in the past week America’s Federal Reserve has unleashed a huge amount of liquidity. Foreign central banks have joined in. Many face the additional challenge of a strengthening dollar.

Unlike the 2007-09 financial crisis, when problems in the financial system caused an economic meltdown, the spread of the covid-19 disease has caused a health and economic crisis that has caught banks, financial markets and business in its wake. Big and small firms realise that they are facing— at the least—months of scant revenues, yet still have bills and debts to pay.

Some are better equipped than others (see left-hand chart). The operating expenses (opex), like wages and rent, of all nonbank S&P 500 companies in 2019 amounted to $2.6trn. The same firms held $1.7trn in cash and liquid securities at the end of that year. On average, that was about seven months of opex. But this cash is unevenly distributed. Apple could pay for six years of opex with its $200bn war chest. Many big utilities, such as Edison International, carry only enough cash to cover a week’s worth.

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Unfortunately, credit is not readily available. Funding strains have emerged across markets globally. In January American firms that issued risky high-yield debt paid around 3.5 percentage points more to issue a bond than the government did. This spread is now above 8 percentage points (see chart 3). But even if firms did want to issue bonds at such rates, they cannot. Corporate debt markets are virtually shut in America and Europe.

If bonds are unavailable, firms turn to banks.

Many have credit lines enabling them to borrow whenever they need, up to a certain limit (akin to a credit card). Last week Boeing, an aircraft manufacturer, drew down its entire $13.8bn line in order to stockpile cash.

In America, there have been reports of firms of all stripes—from chipmakers to casino and cruise operators—doing the same. In Europe Aercap Holdings, an aircraft-leasing firm, said it was drawing down its $4bn credit line.

But banks have problems of their own. The first is that the thicket of global bank regulations imposed on them since the financial crisis may be exacerbating the funding crunch. Take regulations concerning “risk-weighted assets”. Banks must hold a certain amount of capital relative to the size and riskiness of the assets, such as loans, they have on their books. But as volatility in the value of the assets rises, they become more risky, forcing banks to shrink their balance-sheets. Another example is the new Current Expected Credit Losses rule, which came into effect for public companies in January. It forces banks to provision for bad loans as the probability of default rises, rather than waiting until counterparties start missing payments before booking losses.

The second problem banks have is their own scramble for cash.

As lenders make loans, their balance-sheets grow. But balance-sheet is a scarce resource, especially in the current climate. In order to issue more loans banks must either shrink other assets, or find extra capital and funding. They are doing both. Banks have pulled back from market-making activity, as evidenced by the stubbornly high interest rates in the “repo” market, where firms and banks can swap cash overnight in exchange for posting Treasuries as collateral. Ordinarily banks might jump at the opportunity to arbitrage the difference away by hoovering up Treasuries. Yet intermediating in the repo market is something they can ill afford at present. Banks are also retaining more of their profits in order to build up capital. On March 15th America’s six largest banks announced they were halting share buybacks for three months.

See:  Covid-19: Resources and Guides for Businesses and Individuals

Their backstop is the Federal Reserve, America’s lender of last resort. It has gone out of its way to ease the blockages in the financial system by encouraging banks to lend. It started on March 12th when the New York Fed, a branch of the central bank, made $1.5trn (an ocean of cash) available for repo operations. In addition to cutting interest rates on March 15th the Fed announced it would buy up $500bn-worth of Treasuries and $200bn-worth of mortgage-backed securities. By taking assets off the banks’ hands, it enables them to expand lending. It cut the rate on the “discount window”, a tool for banks to borrow from the Fed, and encouraged them to use it freely. It suggested that banks could dip into their capital buffers, worth $1.9trn, and their liquidity buffers, another $2.7trn, to lend to firms and households, which helped ease their regulatory constraints. Then, on March 18th, the Fed announced it would start buying short-dated commercial paper, to provide direct support for big companies. It also relaunched a facility to lend directly to “primary dealers”, a group of financial firms that do not have direct access to typical Fed lending channels.

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NCFA Jan 2018 resize - Hawaii launches state-initiated digital currency sandbox The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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Winklevoss twins launch a marketplace for blockchain digital art

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The Toronto Star | Olga Kharif | March 17, 2020

Tyler and Cameron Winkelvoss - Hawaii launches state-initiated digital currency sandboxCrypto entrepreneurs Tyler and Cameron Winklevoss are launching a marketplace for nifties, the tradable digital art that can sell for thousands of dollars.

Nifty Gateway, a startup that the Winklevoss’s Gemini Trust Co. bought last year, is debuting a website Tuesday where consumers will be able to buy and sell digital collectibles from artists including Michael Kagan and Lyle Owerko. Kagan, known for his space exploration-themed work, has collaborated with singer Pharrell Williams on t-shirt designs and recently sold a work through Christie’s for $40,000. Works of photographer Owerko have graced the cover of Time magazine and been collected by the likes of Beyonce. Niftygateway.com will also sell a collection of digital art from MMA fighter Cris Cyborg.

“I haven’t done anything like this before, which is all the more reason to do this now,” Owerko said in a phone interview.

See:  3 Ways Digital Assets Will Reshape The World

For the Winklevoss twins, who have been two of the earliest supporters of cryptocurrency, the marketplace is a way to tap into an emerging and potentially lucrative market for digital art. Unlike other digital renderings, these pieces are kept track of via digital-ledger technology called blockchain that’s similar to that underpinning cryptocurrency Bitcoin. That means artists can issue limited-edition pieces. The twins predict that the market will eventually be as big as the ones for art, collectibles and gaming digital items combined.

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NCFA Jan 2018 resize - Hawaii launches state-initiated digital currency sandbox The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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In the Battle Against Coronavirus, Humanity Lacks Leadership | The World After Coronavirus

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Time | By Yuval Noah Harari | March 15, 2020

AYuval Noah Harari - Hawaii launches state-initiated digital currency sandbox Leaderless World

Today humanity faces an acute crisis not only due to the coronavirus, but also due to the lack of trust between humans. To defeat an epidemic, people need to trust scientific experts, citizens need to trust public authorities, and countries need to trust each other. Over the last few years, irresponsible politicians have deliberately undermined trust in science, in public authorities and in international cooperation. As a result, we are now facing this crisis bereft of global leaders that can inspire, organize and finance a coordinated global response.

During the 2014 Ebola epidemic, the U.S. served as that kind of leader. The U.S. fulfilled a similar role also during the 2008 financial crisis, when it rallied behind it enough countries to prevent global economic meltdown. But in recent years the U.S. has resigned its role as global leader. The current U.S. administration has cut support for international organizations like the World Health Organization, and has made it very clear to the world that the U.S. no longer has any real friends – it has only interests. When the coronavirus crisis erupted, the U.S. stayed on the sidelines, and has so far refrained from taking a leading role. Even if it eventually tries to assume leadership, trust in the current U.S. administration has been eroded to such an extent, that few countries would be willing to follow it. Would you follow a leader whose motto is “Me First”?

See:  Three Big Things: The Most Important Forces Shaping the World

The void left by the U.S. has not been filled by anyone else. Just the opposite. Xenophobia, isolationism and distrust now characterize most of the international system. Without trust and global solidarity we will not be able to stop the coronavirus epidemic, and we are likely to see more such epidemics in future. But every crisis is also an opportunity. Hopefully the current epidemic will help humankind realize the acute danger posed by global disunity.

To take one prominent example, the epidemic could be a golden opportunity for the E.U. to regain the popular support it has lost in recent years. If the more fortunate members of the E.U. swiftly and generously send money, equipment and medical personnel to help their hardest-hit colleagues, this would prove the worth of the European ideal better than any number of speeches. If, on the other hand, each country is left to fend for itself, then the epidemic might sound the death-knell of the union.

In this moment of crisis, the crucial struggle takes place within humanity itself. If this epidemic results in greater disunity and mistrust among humans, it will be the virus’s greatest victory. When humans squabble – viruses double. In contrast, if the epidemic results in closer global cooperation, it will be a victory not only against the coronavirus, but against all future pathogens.

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Harari on the world after coronavirus

In-Cyprus | Bouli Hadjioannou | March 21, 2020

In an  article, the world famous Israeli author ofSapiens’, ‘Homo Deus’ and ‘21 Lessons for the 21st Century’ weighs in on the coronavirus pandemic, focusing particularly on the issue of individual rights as governments ratchet up efforts to stop the spread of the virus, as well at that of global cooperation.

“Humankind is now facing a global crisis. Perhaps the biggest crisis of our generation. The decisions people and governments take in the next few weeks will probably shape the world for years to come. They will shape not just our healthcare systems but also our economy, politics and culture. We must act quickly and decisively. We should also take into account the long-term consequences of our actions,” he writes.

In taking decisions, the world should ask not only how to overcome the immediate threat, but also what kind of world we will inhabit once the storm passes. “Yes, the storm will pass, humankind will survive, most of us will still be alive — but we will inhabit a different world,” he adds.

See:  Can Fintech Make the World More Inclusive?

In this time of crisis, the world faces two particularly important choices. The first is between totalitarian surveillance and citizen empowerment. The second is between nationalist isolation and global solidarity.

And he concludes:

“Humanity needs to make a choice. Will we travel down the route of disunity, or will we adopt the path of global solidarity? If we choose disunity, this will not only prolong the crisis, but will probably result in even worse catastrophes in the future. If we choose global solidarity, it will be a victory not only against the coronavirus, but against all future epidemics and crises that might assail humankind in the 21st century.”

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NCFA Jan 2018 resize - Hawaii launches state-initiated digital currency sandbox The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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How Regulation Crowdfunding Stood up to the First Weeks of Coronavirus – Almost Opposite of the Public Markets

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Crowdfund Capital Advisors | Sherwood Neiss | March 20, 2020

RegCF and Covid 19 - Hawaii launches state-initiated digital currency sandbox

The Coronavirus is taking the financial markets by storm. It began its attack on the public markets around February 12th. Since then, the markets have dropped 30% off their highs and have made wide swings from one day to the next. It has been one of the most volatile periods in history. While we have yet to see how everything will play out, it is encouraging to see that this volatility has seemingly not had the same impact on private funding online. The data shows that people are still investing in their local businesses via online platforms. And their numbers are growing year over year. This will play an important role as we emerge out of this pandemic. We wanted to understand what is happening, so we dug into the data, reached out to a few platforms, and this is what we learned.

See:  US Reg CF Funding Portals: 50 in Total with Several Exits and Several Additions. Is Reg CF Ready to Scale?

Since February 12th, over $11.6 million has been invested into over 320 active companies, who are raising money on 13 online investment platforms. Over 21,000 investors have made individual investments into these companies. Comparing this to the same period last year, $9.8 million was invested into 227 active companies on 17 platforms by over 11,000 investors. There were 41% more active companies during the same period last year. The amount invested was up 16.3%, and the number of investors engaged was up 90%. All of these select private market indicators were up despite the public markets being in a free fall.

The image below shows period over period activity from February 12th to March 18th. What we see is that, despite the volatility in the public markets, this segment of the private capital markets appears to be withstanding the negative impacts … for now.

There have been several breakout companies during this period of public volatility. The list below shows the top 10, who they are, where they are based, where they are raising funds, and how much they’ve raised during this period.

Company City Listing URL Amount Raised 2/12/20 to 3/18/20
Mightly Quinn’s Passaic https://www.seedinvest.com/mightyquinns/series.b  $1,075,619
Lost Spirits Vernon https://wefunder.com/lost.spirits  $1,070,000
Black Sands Entertainment Brooklyn https://wefunder.com/black.sands.entertainment  $480,000
Ample Foods San Francisco https://republic.co/ample-foods  $295,836
McSquares Denver https://wefunder.com/mcSquares_The_Art_Of_Whiteboarding  $282,207
Neurohacker Carlsbad https://wefunder.com/neurohacker  $277,529
Called Higher Studios Franklin https://www.startengine.com/called-higher-studios  $274,730
GenesisAI Allston https://wefunder.com/genesis.ai  $263,725
Copperworks Distilling Seattle https://wefunder.com/copperworks.distilling  $259,637
Fisher Wallace New York https://www.startengine.com/fisherwallace  $249,693

We asked some of the platforms for their thoughts on why the private capital markets might be operating differently from the public ones. Ryan Feit, CEO of SeedInvest, shared an interesting perspective. As he put it:

“Sentiment is good. Venture will freeze up and entrepreneurs will need to utilize alternative sources of capital more than ever. On the investor front, the public markets will undoubtedly take a toll but given that the private markets have a low correlation to public and with interest rates at zero, hopefully people will continue to shift capital away from traditional assets.”

Jonny Price, Director of Fundraising at Wefunder felt

“It is too early to tell. While he could certainly see how this crisis would lower investment volume March 2020 has been is our best month ever already.” He also agreed with Pettid and Feit above by stating, “You can make a case that when the stock market is crashing, investors will seek alternative investment opportunities. And when conventional sources of capital dry up (e.g. VC), more founders might turn to their fans and customers for capital.” His last thought was most poignant, “High level — if there was ever a historical moment for a democratic and people-powered financial system, this would seem to be it.”

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NCFA Jan 2018 resize - Hawaii launches state-initiated digital currency sandbox The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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How the UK economy can survive the coronavirus

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Ten | | March 20, 2020

UK and coronavirus - Hawaii launches state-initiated digital currency sandboxThe UK is shutting down, and a recession is inevitable. Rishi Sunak has vowed to do ‘whatever it takes’ to protect incomes, businesses, and jobs. But what should he actually do?

It is essential that he, and the British public more widely, realise that this is not a ‘normal’ recession like ones we experienced in 2008-09 or the early 1990s. If we treat this recession as a normal recession, it could cause lasting damage to the economy even after we end quarantine measures, and make it even harder to beat this virus before then.

In a normal recession, the government should generally not bail out failing businesses. Instead, while keeping the overall macroeconomy stable with monetary and fiscal policy, they ought to let insolvent and unprofitable businesses go bankrupt, bail-in banks, and support workers as they move to new jobs. We didn’t want Blockbusters and Woolworth’s to survive the Great Recession, we wanted capital and labour reallocated to Amazon and Netflix. Normally, we want a post-recession world to look different to the pre-recession world.

But this isn’t a normal recession.

First, it’s self-inflicted. When the Prime Minister tells us to work from home and avoid pubs, cafes, and restaurants, he is in effect calling for a reduction in economic activity. That’s absolutely right from a health point of view, but trying to ‘get the economy moving’ by using traditional stimulus policies is in direct conflict with this goal.

Second, it’s (probably) temporary. This will pass. We will eventually develop treatments and vaccines for this disease, or at the very least introduce a workable system to detect and contain it, and eventually life should mostly return to normal. Some sectors may be permanently less profitable, but most won’t.

Third, it doesn’t care if you’re profitable or solvent. There is no reason to think that good, as in profitable in normal times, businesses will be any more able to weather the storm better than bad businesses. In fact, the opposite may be the case – highly productive businesses that have higher overheads (like labour or rental costs) will be more badly hit than less productive businesses with lower overheads.

Fourth, it’s not failing businesses’ fault. Unlike in the financial crisis, where the promise of bailouts may have incentivised banks to take excessive risk, that kind of moral hazard isn’t a concern here. On this point, we agree with Jonathan Portes: “It’s hardly reasonable to suggest that your local Thai restaurant should have made a business plan that took into account the risk of a three month pandemic-induced shutdown.”

Fifth, there is no obvious private alternative. The costs of this shutdown are so large and so widely shared across the economy that it is difficult to imagine a private body that could insure against this risk. Insurance usually works when costs are not borne by everyone at once, so it can use the premium payments of those who have not incurred a cost to provide cover to those who have. When costs are borne by as large a group of people as these, the cost-shifting has to be across time, and in as large a case as this, only the state may be able to do that amount of cost-shifting.  This, and the fact that they are mostly once-off, is why we are relatively relaxed about the cost of these measures: there may be some free market ‘nirvana’ where a private agency did the cost shifting, but in our world the state must act as the next best alternative.

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Because of these factors, many of the remedies we would usually support during a recession may backfire. Our immediate aim should not be to prevent a sharp reduction in economic activity – unusually, this is the goal. We do not want people going out and spending in bars and restaurants. The economic priority is instead to facilitate this sharp reduction in economic activity, but doing so in a way that doesn’t cause long-term damage to the economy.

First, we should distinguish between two different kinds of business that may be threatened with bankruptcy during this period. Solvent businesses may still go bust without additional liquidity – government-backing for business loans is one solution to this, so that they can access credit. But the problem is much bigger than that. The financial hit of several months of low or no revenues, while overheads such as wages and rent still need to be paid, will push businesses that would otherwise have been solvent into insolvency. This is not simply a credit issue – the overhang of those costs means that as we come out of the downturn, many would struggle to pay back any debts incurred.

As for workers, many simply cannot work remotely. Most of them will either be laid off or have their hours cut significantly, with little prospect of alternative work for many of them. The short-term hit will be painful to anyone affected by this. And, if we expect to go back to normal at some point after this, it will be enormously wasteful.

As Steven Hamilton and Stan Veuger write, we don’t want to lose “the valuable things these businesses have worked hard to build—the products, processes, knowledge and relationships that make them unique.” Entrepreneurship isn’t easy. You can’t simply re-assemble a business overnight. And matching workers with the best jobs for them is a slow, difficult process – consider how long you have spent in your life looking for new jobs and carefully deliberating about the best option between different choices.

Economic policy when every day is like Sunday

To avoid this, we need a response that keeps much of the economy in stasis for the shutdown period. As much as possible, businesses should be kept alive and workers should stay attached except when normal factors might lead them to leave – a better offer elsewhere, say. The aim should be to keep as many existing business relationships alive and viable as possible, so that they can return to normality once the shutdown period is over. A temporary fall in economic activity need not lead to a depression. As Wojtek Kopczuk notes, “the economy does not collapse on weekends and it does not collapse in Europe in August when seemingly nobody works.”  We should be aiming to keep our economy in stasis, so that it is in as good a position as possible to bounce back, almost as if we were an off-season seaside resort.

The policy response should be designed to protect businesses, protect jobs, and to protect affected individuals. Support for the unemployed and inactive self-employed will be important, but the priority is to keep workers on payroll, even if they can’t actually work. This could be achieved in a number of ways that could be rolled out soon, some using existing payment mechanisms and administration to act swiftly.

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Remember that these are not intended to be economic ‘stimulus’ in the conventional sense of trying to increase economic activity. They are not really ‘macro’ policies at all. Rather they are policies designed to keep individual firms and workers afloat during the next few months - a ‘big micro’ approach, you might call it. We’re also relatively relaxed about large businesses that can access capital markets, and so in general can access support that way if they are long-term viable.

Saving businesses

First, we should be prepared to bail out small businesses – provided they keep their workers. Steven Hamilton and Stan Veuger have a novel proposal targeted at SMEs. Loans would be issued to cover any fall in revenue experienced by a participating business relative to previous years (with a benchmark level to be determined for new businesses). However, unlike the Business Interruption Loan Scheme announced by the UK Government, businesses would also receive a tax credit equal to the full loan amount including interest, provided that the business maintains its full-time-equivalent (FTE) payroll through the duration of the crisis. In effect, if a business does not lay off its employees they do not have to pay the loan back.The plan would also cap the net income (after tax credits) of businesses receiving the loan at a given percentage of previous years’ net income, to prevent companies from making windfall profits by cutting variable costs.

The benefit of this scheme is that it makes support for businesses conditional on keeping workers attached. The key drawbacks are that it’s untested and may be difficult to roll out quickly, because there are no existing institutions we can adapt to do it. Dr Michael Ryan of the WHO didn’t have the economic response in mind when he said that “perfection is the enemy of the good when it comes to emergency management. Speed trumps perfection”, but his logic applies here too. The challenge is putting something in place that will stop layoffs now. If this takes weeks to assemble, many businesses may start laying-off workers immediately. Making it clear, urgently, that this kind of structure will be in place may lead firms to hold off on layoffs, even if it takes a few more weeks to put it into place.

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Second, a solution that may be easier to implement is to essentially ‘hack’ the statutory maternity pay system and apply it to all workers. The Resolution Foundation is proposing a Statutory Retention Pay (SRP) scheme in which people who don’t have work to do stay formally employed by their firm, but with a significant amount of their pay covered by the state. If the rate were set at 66% (and 80% for workers earning less than £189 a week), then it would cost £8bn if a million workers took part in the scheme. But we should be prepared to borrow and spend much more than that if necessary.

The scheme has parallels with the Danish response to the virus, where employers are able to grant a paid leave of absence to their workers. The government will pick up 75% of their salaries, with the employer paying the rest. At the same time, workers agree to give up entitlements to paid holiday.

Startups that are not yet bringing in revenue will need targeted support as they approach the end of their funding runways. They are ill-suited to taking on debt, such as the Business Interruption Loans, and are unlikely to benefit from rates relief or grants, as many use co-working spaces. Startups will be responsible for a large proportion of job growth once this is over, and cannot be overlooked.

Two measures should be targeted at them. First, grants aimed at small businesses that don’t pay rates should be extended to startups in co-working spaces. In lieu of accurate valuations, grants could be limited to at startups with fewer than 10 employees. Second, instead of loans the British Business Bank should back convertible notes of up to £500k for early-stage startups. The notes would convert to equity at a later date and avoid the problems of issuing loans for pre-revenue innovative businesses.

Protecting incomes and jobs

It is important to target businesses as well as individuals. The aim is not just to protect incomes but to ensure workers have a job to go back to.

A temporary basic income wouldn’t do this and would cost more. It would also be poorly targeted – many workers do not need support and transfers to them create additional tax burden in the future that need to be paid back, and that should be avoided if there are alternatives that can be better-targeted.

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However, means-testing is difficult at the best of times, and impossible in this kind of circumstance. A ‘third way’ might be to, effectively, open the student loans scheme to any UK worker that wants to access it, allowing them to borrow money now to be paid back on an income-contingent basis over their lives. Under the current student loan repayment terms, earnings above a certain income threshold (currently £25,716/year) are taxed at 9% to repay the loan, with any amount unpaid written off thirty years after the loan was first taken out. The loan incurs an interest rate equal to a measure of inflation (RPI) plus 3%. We could offer different plan terms to people availing of this scheme, cap the amount at a realistic level to reflect average earnings, and the repayment term to a short period of, say, five years.

Low earners would probably never pay back the entirety of the ‘loan’ – since this is a one-off cost, that simply transfers lost income to them from other taxpayers, and it is arguably a feature of this scheme, not a bug. Most other people, depending on their earnings and terms decided on by the government, would pay back as and when they were able to.

The advantage of an approach like this is that it allows people to self-select into the scheme, eliminating any need for the state to try to decide who is and is not deserving of cash now.

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