The cost of incoordination
G7 Summit

The cost of incoordination

G7 members have yet to find common ground for managing developments in financial technology, but rapid progress is required if the group is to stabilise risks in the digital world

As a result of the crisis caused by the COVID-19 pandemic, G7 economies dropped by 4.7% in 2020. G7 members have implemented expansionary monetary and fiscal policies to sustain the recovery of the economy, financial system and labour market. However, economic recoveries are “diverging across countries and sectors, reflecting variation in pandemic-induced disruptions and the extent of policy support”, as the International Monetary Fund’s April 2021 World Economic Outlook said. G7 countries are expected to grow by 5.1% in 2021. Coordinated global policy is needed to resolve the economic issues that underlie tensions over trade, taxation and technology.

Although trade and taxation are at the top of the agenda of the Organisation for Economic Co-operation and Development, and G7 members have converging interests, approaches to managing the developments in financial technology are not yet similar.

There are substantial benefits from digital finance in terms of reduced costs and increased access for small operators, with costs related mainly to regulation, both domestic and international. Regulatory arbitrage significantly threatens financial stability, and larger economies can coordinate global technology regulation. The main focal points are users’ data and users’ rights. The primary asset of the digital world – users’ data – is managed by a few giant firms without any public control or system for protecting consumers. Harvard University’s Shoshana Zuboff describes the current economic system as centred on the commodification of personal data with the core purpose of making profits, which she calls surveillance capitalism; a balance of power is absent.


The European Union’s General Data Protection Regulation was the first step towards more balanced relationships in the digital world, where the public sector guarantees principles and rights on data privacy and firms compete on a common playing field. However, other G7 members have not taken a similar approach, so arbitrage has not been avoided.
Digital finance offers a wide set of tools at the disposal of markets, intermediaries and customers where users’ data are collected, exploited and sold with no reward given to those users. Users are unaware of the effective costs and gains of the digital revolution that is radically changing their habits and consumption preferences.

In the COVID-19–afflicted digital world, most technology revolutions bring certain risks that should be actively managed. They include private digital currencies, automated credit providers and the tokenisation of exchanges. Private digital currencies have the potential to substitute, at least partially, for central banks’ money without any guarantee of liquidity for final users. Fintech intermediaries such as automated credit providers can increase the supply of credit for small and medium-sized enterprises but, at present, have no capital requirements and can actively contribute to global financial instability, in the case of adverse shocks. The tokenisation of exchanges widens the opportunity to access the financial system for small and medium-sized investors, but functions without any supervision or risk management system (such as a centralised clearing system).

The fear of losing market share and businesses has prevented most countries from regulating digital finance services, intermediaries or markets. But the time has come to act. The G7 leaders at the Cornwall Summit should coordinate global action on data regulation and protection, to stabilise digital risks, enhance growth and promote fair competition.