It’s All in the Nuance: French Blockchain Investor Translates Le Maire’s Libra Remarks
French Finance Minister Bruno Le Maire spoke at the Organization for Economic Co-operation and Development (OECD) Blockchain Policy Forum on September 12, 2019. He offered a spirited defense of French and European technology policies and spoke frankly about the deep difference in values over the regulation challenging French relations with the U.S. and China. In his introductory remarks in Paris, Le Maire targeted Facebook’s Libra project. In no uncertain terms, Le Maire said he wants to block Libra in Europe as he stated that “monetary sovereignty” of nations would be at risk. “In these conditions, we cannot authorize the development of Libra on European soil,” Le Maire said. He offered a spirited defense of French and European technology policies and spoke frankly about the deep difference in values over the regulation challenging French relations with the U.S. and China.
Forkast.News gets a more nuanced view on those remarks from Michael Amar, co-host of Paris Blockchain Week Summit and a serial entrepreneur that leads Chain Accelerator, a blockchain hub incubating blockchain talent in France. Amar shares why Le Maire’s remarks is only the beginning of a more negotiated journey for Libra acceptance in Europe, the U.S., and around the world.
Listen to the podcast version
- How France sees blockchain disrupting finance, services, and manufacturing
- Why France believes Europe does not have digital giants like the U.S. or China and how it plans to address losing the race with those countries
- How France believes blockchain challenges the control and conception of private property
- Why France believes the state must have an early and ongoing role in regulating new technologies Why France is committed to taxing digital assets the way it does physical and financial assets, and is determined to push for international agreement
- How Facebook’s Libra threatens the independence of some nation-states
Bruno Le Maire: Dear Director General, Ambassadors, Ladies and Gentlemen, Friends, I would like to say once again how pleased I am to be able to speak with you for this second OECD Global Forum on Blockchain. Blockchain is a controversial technology, like all new technologies, without exception.
Some claim that the blockchain will be the most important breaking technology of the 21st century. Others say this is a technological illusion. The only thing I know is that most people who talk about blockchain don't understand anything about blockchain. I have tried myself for almost three years as Minister of Economy and Finance, to listen to the experts, to talk with all those who have innovated on blockchain to see the value of this technology. And I came to a simple conviction that blockchain is a major future technology for France, Europe and the rest of the planet.
That is what led me, together with the President of the Republic, to define a clear strategy for blockchain that France did not have until three or four years ago. I want to thank everyone who helped us build this strategy. Experts, business leaders, engineers and Governor Jean-Pierre Landau, to whom I specifically entrusted the mission. It's hard to help us get a clearer picture of this technology and provide answers in terms of organization and regulation. I say it again, I believe the blockchain. I can be wrong like any politician, but I give you my personal conviction. Blockchain is a technology of the future, a major technology for the 21st century. It must be taken seriously, organized and made sure that OECD member states are at the forefront of mastering this technology.
First, I see that it has a radical transformational capacity for a number of activities and that is proof of its effectiveness. That's true in financial services. Where we see that financial markets that are built on a very complex foundation: marketplaces and clearing houses, delivery settlement systems. One goal that I fully understand is to ensure the security of financial transactions. Blockchain technology can eventually replace these very complex infrastructures. It is therefore a very promising technology for its financial services as it would replace an extraordinarily cumbersome and complex set of financial transaction certification. A blockchain protocol. This protocol would provide a comprehensive, decentralized solution that allows transactions to be carried out, recorded transactions and stored the value associated with those transactions. And besides, it is no coincidence that many fintech develop this technology. You also know my determination to make French fintech the best performing fintech in the world. And when I see Liquide, for example a French startup, I am convinced that the transition from a centralized financial system to a decentralized financial system will happen much sooner than expected.
This is also true in the services sector. For example, it makes it possible to establish smart contracts that are a real revolution in the insurance sector. They will enable, for example, to automate certain tasks for the benefit of consumers by immediately triggering compensation to an insured person in the event of, for example, climatic disasters. I consider it is a real step forward for the insured to have the immediate start of his insurance contract in the event of climatic disasters rather than having a succession of decisions that allow this compensation. And this is also true in the manufacturing industry. And I would like this second forum to allow everyone to realize that blockchain is not limited to services. But since it is already working in industry, manufacturing and industrial production, it will, in my view, disrupt all sectors and processes of industrial production. Let us take an example of agri-food. There is a key issue in the agri-food industry, which is the traceability of products. The blockchain offers us an effective, undeniable solution of total traceability of products throughout the production and supply chain to consumers, guaranteeing total confidence in the safety of products. This is an absolutely major step forward. All this must lead us to have a strategy from the moment we see that the blockchain is developing in all sectors of economic activity, from financial services to insurance.
By the way, I insist on manufacturing. We need to have a strategy that allows us to master and regulate technology, because it is one of the great democratic challenges of the 21st century to combine technology mastery and regulation of technology according to our values. Because it is democracies that determine the values of technology, and I will come back to that. The technologies that determine our values are absolutely decisive if we want, in the area of artificial intelligence, autonomous vehicles or any other technological progress, that these advances be accepted by our citizens, that is, technology itself. Our research and training centres, such as the National Research Institute dedicated to the Centre for Digital Sciences, Inria or Ecole Polytechnique, have focused on learning this technology. And it is the vitality of this research that has enabled us to build a particularly efficient innovation ecosystem in France. There are now more than 200 companies developing blockchain projects in France and all our major groups are experimenting with blockchain in their services and will soon be ready to spread this innovation in their sector. This obviously involves an investment effort. The French government has therefore decided to support innovation in this cutting-edge technology, notably through the deep tech plan of the Public Investment Bank and the Joret Innovation Fund, there also in the coming weeks.
Within the framework of the productive pact entrusted to me by the President of the Republic. The opportunity to revisit this necessary investment effort in France and Europe. This is a key issue of the 21st century. If today we do not have digital giants in Europe like those in the United States or China, the only reason is money. We have technologies, but we don't have the funding to grow our startups, turn them into mid-sized companies, then digital giants or technology giants, and we can no longer accept having our startups bought by foreign digital giants and reclaim technologies that we have have demanded so many investments in France or Europe. Creating the Capital Markets Union, making available investment capital in Europe, venture capital in Europe. More importantly, it is a key to our technological independence in the coming years. Once again, I will return to this on another occasion, but not later than this evening, in Helsinki, on the sidelines of the meeting of eurozone finance ministers, would be an opportunity to recall that technologies can only develop in Europe if they have the necessary financing and that the establishment of the Capital Markets Union in Europe is a top priority. Beyond this technological mastery, the blockchain needs a legal framework. And I repeat, there can be no technology without these technologies being framed by our democratic values.
It is not the technologies that make the values, it is the values that frame the technologies. And the blockchain raises a fundamental challenge because it challenges our conception of control and our conception of private property. That is what, today, raises a real difficulty. You had centralized private property with the blockchain. You have a decentralization of property. If we do not go to the heart of the problems, even philosophical, posed by new technologies, we will not be able to develop them in a framework that is reassuring and protective for our fellow citizens in the blockchain. Control is essentially decentralized. This is the very principle of blockchain. The property is the result of collective validation. Where, yesterday, ownership was the result of the registration in a single register of documents certifying ownership, the blockchain decentralizes that document and somehow strengthens ownership, provided that the regulatory legal framework is sound. That's why in France, we were the first European nation in 2017, to authorize financial law, registration and transactions on certain financial securities through a shared and secure electronic recording device. In the pact law I carried last year and which is in force since May 2019. We have established a new framework that secures tokens and other digital assets missions on a blockchain.
This new, unprecedented framework was welcomed at the recent IMF meetings and is inspired by the issuance of financial securities while being adapted to the specificities of blockchain technology. Digital asset issuers will be able to apply for a visa or license to certify the quality of the token issued, so they can apply and there is no obligation. Likewise, an authorization is introduced for all intermediaries of the crypto market active brokers, exchange platforms, conservators, digital asset managers, investment consulting providers. This approval includes a mandatory component on the prevention of the fight against money laundering and the financing of terrorism and an optional component on the rules governing the conduct of activities. What does that mean? This means that when it comes to transaction security, there is one point that is not negotiable. And I say that when I see other projects I will talk about in a moment. One point that is not negotiable is the fight against money laundering and the financing of terrorism, which is at the heart of the OECD's work. On the other hand, the rules of practice specific to these activities. A more flexible framework can be considered from this point of view. On this basis, the French Financial Markets Authority can draw up a white list of the projects and intermediaries that have received this approval and which you can combine perfectly.
Regulations and new technologies, transaction security, especially in the context of combating money laundering and terrorist financing and new blockchain technologies. The two are absolutely not incompatible. There is no reason for libertarian philosophy to prevail when it comes to new technologies. I do not see why new technologies would necessarily be guided by a libertarian ideology that rejects any regulation and challenges the role of the State. I think we can have strong states and powerful new technologies. The two are absolutely not incompatible. And if the price to pay for the emergence of new technologies is the destruction of the states, it will be without France and without the European states. We in Europe believe that we can combine mastery of new technologies with respect for the authority of the State. This is, in any case, the line we want to follow in France. This blockchains strategy also includes an accounting and tax component. And here too, you can see that behind this blockchain technology is a whole set of major political choices for the 21st century. No libertarian ideology. Respect for the authority of the State which serves the general interest. No total deregulation on the grounds that they are new technologies, but adaptive, flexible regulation on the basis of voluntary work and, of course, taxation that takes account of this new creation of value.
We will not continue to massively tax the manufacturing industry with its physical location, its employees and its workers, its robots and refuse any taxation to dematerialized activities that create value. That would be unfair. That would be totally inefficient from the point of view of financing our public assets. We are therefore committed, with the full support of the OECD on the definition of taxation of the 21st century. You know that this has been one of the strong commitments of the President of the Republic and of France for almost three years. Our determination to reach an international agreement at the OECD on digital taxation and minimum taxation is complete. Both are indispensable for a fair and strong taxation in the 21st century minimum taxation. First of all, it is essential that we can all agree on a minimum level of corporate tax. After all, our American friends have managed to do that and they have a so-called guilty clause that provides a minimum tax rate of just over 13 percent. In order to prevent large multinationals from escaping tax, we still have the IMF that sounded the alarm and tells us, there are large companies producing where production costs are lowest and repatriating their profits, where taxes are lowest, if not there.
No one can accept that. There is therefore, a need for minimum taxation. And together with our German partners, with the members of the G7, we are determined to achieve this pillar of the new international tax system of the 21st century. And then there is digital taxation. Of which we hear a lot about and which also remains at the heart of the French political will. Our goal has never been to stigmatize one company or another. It was never to stigmatize one country or another, but simply to fill a tax gap. Today, you have companies that generate billions of euros in turnover in a territory. For example, France, which have tens of millions of customers in France or in the European single market and pay derisory taxes. For a simple reason they do not have a physical presence in the territory. On the grounds that you don't have a physical presence. You don't pay taxes. But the tax is related to the profits you make, not to your presence or not in a territory. So it is coherent, necessary and fair to implement this digital taxation.
We have been trying for two years to convince our European partners, and we have almost reached it as many as four states that have opposed it. I draw a simple conclusion it is time to move to qualified majority voting on tax decisions in Europe rather than unanimously. This will allow us to move forward faster. But in the absence of a European agreement, we have put in place a national tax which will apply from 1 January of this year 2019. But we have also reached an agreement with our American partners on the sidelines of the G7, with the President of the Republic, which provides for very simple things as soon as there is an agreement. Here at the OECD, on digital taxation, this international agreement will replace the national tax in France and until then the national tax will apply. I believe that this is a strong incentive to speed up the work of the OECD and reach agreement on international digital taxation in the first half of 2020. In any case, it is our will and our determination. This blockchain technology, beyond the tax issues that I have just talked about at length, but if I talk about it at length, it is because our fellow citizens want results on this subject. They want to pay their taxes, whether they are private individuals or entrepreneurs, but they do not like that others do not pay. I understand them very well. It never bothered me paying my taxes to finance French schools, nurseries, hospitals and public services. But it bothers me to know that those who make the biggest profits don't pay.
That explains a lot of France's determination. This blockchain technology also raises thorny accounting and tax issues. The explosion in the price of some active crypto, such as Bitcoin, has allowed some investors to realize considerable capital gains. However, the opacity of marketplaces and the low traceability of crypto transactions could lead to a total absence of capital gains taxation in some cases. Again, how can one explain that several hundred thousand euros in crypto assets escapes tax when the gains generated by investing in a traditional business are subject to it? We have therefore introduced a fiscal framework adapted to this issue of active crypto that allows us to understand the wealth created when crypto is converted into traditional currency.
We did ask, “Why not tax crypto transactions?” But if you tax crypto transactions well, it's hundreds of thousands of transactions that become taxed, sometimes totally inefficient and unbalanced. We believe that the right time of taxation is when the crypto transaction turns into traditional currency. It seems to us that this is a balance point which favors the development of the sector while ensuring fairness in taxation.
Similarly, value-added tax will only be collected when the active crypto is used for the acquisition of a good or the acquisition of a service. I believe that this French proposal, the decision we have applied in France. But we are doing this for the OECD, because I hope that the OECD will, in turn, engage in a reflection on the approximation of tax models for transactions involving crypto assets. It is necessary for the development of active crypto that tax models are the same so that we have regulatory arbitration strategies that are the same across the planet. Finally, it implies that a balance is found between them. New technologies and respect for the sovereignty of States. And I come back to what I was saying about my opposition to libertarian philosophy and the need to respect the general interest and sovereignty of states. This difficulty arises very directly on the Libra coin project that is supported by Facebook. When the G7 Finance Ministers and Central Bank Governors met in Shanti in the presence of OECD Secretary General Angel Gurria, we unanimously expressed our concerns about the risks of free trade. Libra, it would be a global currency owned by a single player that has more than 2 billion users on the planet.
The monetary sovereignty of States is at stake. The monetary sovereignty of our nations is at stake in States with weak currencies. I will not quote, but there are many of them all over the planet. Libra will replace sovereign currencies. And will call into question the independence of states. This possible privatization of a currency raises risks of abuse of a dominant position, raises risks of sovereignty and raises risks for consumers and businesses.
Libra also raises a systemic risk from the moment when there are two billion consumers. Any failure in the functioning of this currency, in the management of its reserves, could create considerable financial disturbances. Finally, I do not see why we should be so careful over the years to avoid any use of a currency for whirling or for the fight against the financing of terrorism. And that a digital currency like Libra would escape its obligations. All these concerns about Libra are serious. So I want to say this very clearly. Under these conditions, we cannot allow the development of Libra on European soil.
But this project has the merit of pointing out some difficulties in financial transactions. With transaction costs that are too high from one state to another, especially in Europe where they are sometimes too slow, it is not acceptable that even the most basic financial transactions transactions can be as long, as complicated or so long, complicated and costly transfers from one European state to another. So there are two possible avenues for action on which I think we need to move forward quickly and this is, I believe, the best response to the Libra project that has been proposed by Facebook. Firstly, the financial sector has the opportunity to provide answers and I hope that the financial sector, particularly the banks, can make proposals to improve the quality of their international payment systems and reduce the costs of their international payments.
I know some banks are ready. I ask them to speed up their work and make proposals to us in the coming months. The second track is the one I opened a few days ago and discussed with the President of the European Central Bank, Mario Draghi, and his successor Christine Lagarde. It is the opportunity to think about a public digital currency. I propose that we start work very quickly on this public digital currency project, that we explore several options, because I know that where it works and that there are several very different options, some faster than others. I hope that we will be able, at the Finance Ministers' meetings in Washington in mid-October, to launch this reflection and that we will have concrete plans available to us within a few months. I am convinced that the OECD has a major role to play in this reflection on the establishment of a public digital currency and on the options available to us. These are, ladies and gentlemen, the few points I wanted to share with you this morning on blockchain technology.
I'm passionate about it. It fascinates me first because I believe in this technology and it fascinates me because I think you saw it in my speech. Blockchain technology is a way to understand the democratic challenges before us. Today, our planet is facing major challenges on which, as the President of the Republic keeps reminding us, he has done so again in this rostrum. A few months ago, only multilateral solutions were adopted. Becomes a climate challenge for which only the nations assembled can provide answers. You have a considerable demographic challenge where, again, only the Gathering of Nations will be able to provide effective responses. And you have this major technological challenge? Who is at the same time a challenge of sovereignty, a challenge of mastery, that he will master technology, artificial intelligence and who will not master it. And a political challenge. How do we guarantee? Our mastery of technology and the mastery of technology on ourselves. The blockchain, one asks that question. Digital currency raises this question.
Artificial intelligence, development issues, poses this question is well the role of France will always remember that it is men who must master technologies according to their value and not technologies, impose their value on men.