CIMA Institute, following global trends, periodically updates its training programs in order to convey to its students important information about changes in the modern business environment.
The latest update to the programs took place very recently and will be tested for the first time in exams in December 2022. This update is associated with the rapid development of digitalization of the entire society and the emergence of an increasing number of digital products. It can be argued that knowledge of the basics of the digital economy for management accounting specialists is a significant competitive advantage.
What is the digital economy
The spread of digital technologies predetermines the priority directions for the development of history, society, and the economy of most states. At the same time, there is a global revolution in the information and communication space. Rapid digitalization has affected all areas of human life. This means that it influenced the state in the political, cultural, economic, financial, and social fields. In the Russian Federation, the digital economy program for 2017-2030 was adopted at the federal level and is additionally supported at the regional level.
The economy at each stage of socio-historical development literally represented a kind of digital space, which is logical and understandable. The performance indicators of any business, as well as economic terms, are and have been expressed in numbers. Profit, losses, expenses, income, tax amounts and rates, tax base, inflation rate, budget deficit (surplus), GDP volume, key rate, etc.
All digital indicators are summarized in documents indicating micro- and macroeconomic data. They are necessary for the development, approval, and subsequent implementation of the country’s socio-economic policy, and, as a result, the development of its finances.
The current digital stage implies, first of all, the formation of an innovative information society. This environment is based on:
- use of new digital currencies;,
- virtuality of economic relations;
- reducing the need for bulky transport infrastructure;
- reducing business costs;
- disappearance of traditional markets, etc.
According to Vaipan Viktor Alekseevich (candidate of legal sciences, honorary lawyer of the city of Moscow, deputy dean, associate professor of the department of business law at the Faculty of Law of Moscow State University named after M.V. Lomonosov), the pioneer theorist in the field of digital economy was the US computer scientist Nicholas Negroponte. In 1995, he formulated the concept of the electronic economy in his book Being Digital (translated from English as “Digital Existence”).
In the 90s of the twentieth century, a number of countries began to widely use digital terms in their legislation. By the beginning of the 21st century, regulations related to the dissemination and development of information and communication technologies were approved. In particular, they adopted the Okinawa Charter of the Global Information Society, the Tunisian Commitment Action Plan, and other final documents defining the principles for the formation of post-industrial trends in the economic, socio-political, and spiritual spheres of public life.
What is digital economy in simple words? Essentially, it is a system of economic, social, and cultural relations, which is based on the creation, distribution, and use of digital and computing technologies, and, accordingly, related products. This process primarily affects:
- activities of companies;
- lifestyle, education, employment of people;
- mechanism of interaction between the state and citizens, including the receipt of various significant services.
The latter are becoming more and more numerous; fundamentally new business models and technologies for implementing investment projects are being introduced. The financial industry is among the leaders in digitalization:
- online banking;
- electronic payments;
- crowdfunding;
- scoring models for assessing credit risks;
- investment robo-advisors;
- cloud storage of information;
- cryptocurrencies, blockchain;
- P2P lending.
Enterprise electronic technologies are related to business management, control and analysis; with the sale of products, services or works. Many financial products (loans, investments, payments, etc.) become available via the Internet or via mobile communications.
No one is surprised by paying taxes, housing and communal services via a smartphone, or applying for a loan by submitting an online application on the bank’s website, or online purchasing shares on the stock exchange. Access to data is possible anywhere at any time, the main condition is the presence of the Internet.
Between the devil and the deep sea
Today, credit institutions act as intermediaries between the central bank of a particular country and all users of its currency - in addition to intermediary between the users themselves through deposits and loans. The Central Bank issues two types of money: cash and non-cash. And if the former are difficult to control, then transactions with the latter are easy to track thanks to banks, each of which has an extensive system of correspondent accounts opened with the Central Bank and other banks. They take into account all non-cash funds circulating in the national economy.
In practice, it looks like this: when an ordinary Russian decides to put 10 thousand rubles in cash on an annual deposit, a special account is opened for him, into which the money is credited. They go from cash to non-cash form, but are still registered with the original owner, being his asset. At the same time, they are transferred to the bank’s correspondent account with the Central Bank or another credit institution, which in turn reflects them on the account with the regulator under an agreement with the partner bank. For the bank, they become both a liability (to the client) and an asset (the Central Bank's obligation to it).
Head office of the People's Bank of China (Chinese central bank)
Photo: Jason Lee/Reuters
As soon as a bank that has accepted 10 thousand rubles for its deposit issues it as a loan to another client, it begins to be accounted for in a new capacity: not as cash, but as a loan. Since the depositor does not lose rights to them, and the borrower - albeit temporarily - acquires them, the process leads to an increase in the total volume of money in the economy. This effect is called the “banking multiplier.” It turns out that credit institutions issue much more money into circulation than the Central Bank, which is traditionally considered the only issuer.
To control secondary emissions, which can lead to too high inflation, the regulator uses the required reserve mechanism: a fixed percentage (usually within 10) of all funds raised must always be kept in a separate account with the Central Bank and cannot be used to issue loans. Thus, with a required reserve rate of 10 percent, an additional 100 thousand rubles from every 10 thousand raised will flow into the economy in several stages. Deposits in the Central Bank available to banks serve the same purpose - by accepting them, the regulator gains confidence that credit institutions will not distribute the deposited funds in the form of loans and provoke a rise in prices.
80%
all central banks of the world are conducting research in the field of digital currencies
Central banks keep records of money circulating in the country and abroad, denominated in national currency, and for this they calculate two aggregators: the monetary base and the money supply. Cash in circulation and bank funds in accounts with the Central Bank (correspondent, deposit and required reserve accounts) in total constitute the monetary base. If you add to this all bank accounts (except those owned by financial institutions), you get the money supply. It is banks, through their daily activities, that transform the monetary base (which, minus cash, is the Central Bank's obligations to them) into the money supply.
Pros of the digital economy
The digital economy has a progressive impact on social development and increases the convenience of transactions for all participants in the relationship:
- small business;
- of people;
- medium and large enterprises;
- government agencies.
Many services, goods or works can be found on the Internet, paid online and received in the right place. This saves resources and time. Among other advantages, the following advantages should be highlighted:
- Focus on customer needs - from choosing the right service at reduced prices to solving socially significant problems.
- Simplifying the process of obtaining any services by individuals and legal entities - thanks to the development of electronic and information technologies, the supplier can directly interact with the buyer. There is no need to involve intermediaries. Almost everything (from groceries to tickets, from benefits to passports) can be issued via the Internet.
- The birth of new startup ideas, trends, industries - there is a sharp increase in investment in all projects related to digital services, software, and technological research. This generates the creation of new jobs, and therefore contributes to an increase in labor productivity.
- Reducing costs for online businesses – those companies that have embraced the change and gone digital are thriving. Direct sales are growing, costs for sales, marketing, transport, and logistics are decreasing.
- Transparency of business – most transactions in the digital economy are carried out online, information about purchases is transmitted to the tax authorities. This helps reduce the volume of “black” revenue and fight corruption and fraudulent schemes.
- Increasing the competitiveness of domestic production, expanding the geography of business.
Other national projects
National project “Housing and Urban Environment” National project “Ecology” National project “International cooperation and export” National project “Culture” National project “Science” National project “Education” National project “Demography” National project “Small business and support for entrepreneurial initiative” » National project “Labor productivity and employment support” National project “Safe and high-quality roads” National project “Healthcare”
Disadvantages of the digital economy
The more opportunities something has, the higher the risks. The main problem of the digital economy is related to information leaks and legal restrictions in some areas of legislation. Global digitalization of the economy carries the following disadvantages:
- Increased level of fraud - information security must be ensured in terms of legal, technical, physical and cryptographic data protection.
- Rising unemployment - against the backdrop of the emergence of new professions and jobs, other specialties and entire industries, on the contrary, are becoming a thing of the past, losing their relevance.
- Technological gap – it is possible to ensure full penetration of digital technologies into the economy if there are appropriate developments.
- Digital divide – universal digitalization is not accessible to everyone. For example, in order to receive government services, a person needs to have access to the Internet and create a verified account. Not everyone has the opportunity to do this, which directly affects their level of well-being.
- Digital slavery – as soon as a user begins to actively interact on the Internet, he becomes less free. You have to constantly enter your personal data, every step can be tracked; interests - to abuse. The person himself, his attention and loyalty to something, becomes a commodity.
Development prospects
So what to do? The answer, in my unprofessional opinion, is simple - finance. So what? Companies like Yandex, with revenue of 500 million. There are few dollars per quarter, few investments, what remains is the state with its ability to target financing of the industry.
You might think that the country’s budget is already full to capacity, there’s not enough money even for retirement, but here’s some kind of digital economy. “There is no money,” as they say. Or maybe they exist , they just need to be directed correctly? Should it be directed not at blocking messengers, not at fighting fakes and insults to the authorities on the Internet, not at building a “sovereign RuNet”, not at scandalous “packages”, but at the systematic development of the sphere of IT technologies and digitalization?
The government is, of course, working on this industry. Even a development program until 2035 has been created. But will it actually be implemented? While maintaining the existing rhetoric, this is a rhetorical question (it turned out to be a kind of wordplay).
In general, there are prospects, there are opportunities, there are even results, all that remains is to choose: development or stagnation. Wait and see…
Basic tools:
Blockchain
Full-featured technology for recording and storing digital information. A distributed ledger system involves grouping all records into blocks that are interconnected through a cryptographic signature. Depending on the type of system, the blockchain platform is used to speed up business processes in vertically integrated organizations. For example, to organize a digital treasury system or banking support for contracts. The public blockchain system is used to conduct transactions with cryptocurrency.
Big Data
A set of methods, approaches and tools for the purpose of converting huge volumes of data, including unstructured and structured, into human-readable results. For example, information about transactions, retail purchases; logs about user actions on the network; information from city video cameras. The term combines various technologies that allow you to store and process data.
Information Technology
They imply the process of processing information using AI (artificial intelligence). The areas of its application are becoming more and more numerous, and therefore most processes will soon be automated. The participation of people in their implementation will be reduced to a minimum. AI is a set of technological solutions that studies ways to imitate human cognitive functions.
Internet of Things (IoT)
It is a global computing network that connects various physical objects that can interact with each other or with the world without human intervention. The advantage of technology is that many processes (in trade, manufacturing, healthcare, energy) can be fully automated through remote monitoring of capacities and resources.
Take a closer look
For a long time, the world's central banks almost did not react in any way to the troublemaker, at best taking part in the development of laws regulating the circulation of cryptocurrencies. In countries where they did not dare to fully legalize them (and these are the majority), alternative names were prescribed in documents, more like euphemisms. There is a law on digital financial assets in Russia, but what is meant by them is still unclear - lawyers and crypto market participants argue about this.
By 2017, a lot has changed. Two-thirds of all central banks spoke about exploring the potential of digital money. But we were no longer talking about cryptocurrencies, but about a fundamentally different invention, which was called the digital money of central banks, or CBDC (Central Bank Digital Currency). The Russian-language version is also used - TsVTsB, but so far it is the version in Latin that is more popular. At the beginning of 2020, 80 percent of regulators, whose countries account for three-quarters of the world's population and about 90 percent of global GDP, during a special survey by the Bank for International Settlements, announced that they were directly working on creating their own digital currency. The process in each individual case was at a different stage: some were just studying the issue, while others were preparing a pilot project. But the changes were obvious.
Bitcoin symbol on the streets of El Salvador, the first country to legalize this cryptocurrency
Photo: Jose Cabezas/Reuters
Over the next few months, many major central banks themselves went public. Scientific works or reports have been published by banks in England and Russia, as well as several Federal Reserve Banks that are part of the Federal Reserve System (FRS) of the United States. The European Central Bank (ECB), China, South Korea and Sweden were among the first to begin experiments in introducing digital currencies into the economies of their countries. It is believed that Beijing is seriously thinking about developing a digital yuan amid the growing influence of financial giants AliPay and WeChat, which already account for the majority of payments in China. The idea of a CBDC has not yet received its final universal design, but from what is already known, some conclusions can be drawn. The most important of them says that it is capable of radically changing the global financial system, making banks practically unnecessary.
Introduction
Globalization is a process during which the world is transformed into a single global system. The issue of globalization became very relevant in the 1990s, although various aspects of this process have been seriously discussed by scientists since the 1960s and 1970s.
Globalization of the world economy is the transformation of the world space into a single zone where information, goods and services, and capital move freely, where ideas spread freely and their carriers move freely, stimulating the development of modern institutions and debugging the mechanisms of their interaction.
Have questions
True, not all central banks are yet considering the possibility of using their future digital currencies abroad. This perspective is mainly favored by regulators who are responsible not for individual countries, but for associations. Among them are the European and Eastern Caribbean central banks. The latter is responsible for monetary policy in the eight countries of the regional monetary and economic union: Antigua and Barbuda, Grenada, Dominica, St. Vincent and the Grenadines, St. Kitts and Nevis, St. Lucia, Anguilla and Montserrat. The last two do not have full sovereignty and have the status of an overseas territory of Great Britain.
Digital Yuan logo
Photo: Ng Han Guan/AP
There is no direct mention of intentions to replace existing ones with a new type of money. Central banks of different countries and blocs, including the Russian one, declare that they will retain non-cash and even cash payments, it’s just that there will now be not two, but three monetary forms. The release of each unit of CBDC means the withdrawal of a different form of currency from circulation in order to avoid uncontrolled growth of inflation. The digital ruble, as stated, will have the same functions; it will be possible to replenish the wallet from a bank account, card, or even in cash - as well as make transactions in the opposite direction.
“The digital ruble will be able to make payments even faster, easier and safer. The development of digital payments and equal access to the digital ruble for all economic agents will lead to a reduction in the cost of payment services, money transfers and increased competition among financial organizations,” the Central Bank stated in last year’s release. It was also indicated that the introduction of the digital ruble will serve as an incentive for additional innovations in the field of retail payments.
Hidden
However, there is a country in the world that unexpectedly overtook all the recognized leaders and heavyweights in the financial industry and introduced its own CBDC a year ago. This is the Bahamas, a Caribbean state that gained independence from Great Britain only in 1973 and has since earned a reputation as one of the most popular offshore havens, where billionaires and corporations from all over the world hide their fortunes and assets from prying eyes. Companies registered in the archipelago are exempt from all types of taxes, provided that they conduct operating activities outside the country. Income from the services of lawyers and notaries working with foreigners amounts to 30 percent of GDP.
In October 2020, the Bahamian Central Bank, led by John Roll, issued the world's first CBDC, called the Sand Dollar and designed to complement the national currency, the Bahamian dollar. According to Roll, he realized the need for a digital version of his home country's currency when he saw the difficulties payment systems and their operators faced. The geographical location of the state significantly complicated their work: banks simply refused to service some islands, which were nicknamed family islands due to the small number and demographic composition of the population. Residents often found themselves cut off from a full-fledged financial system and forced to travel to neighboring islands to make basic transactions. Such trips could take from several hours to a whole day.
Bahamas
Photo: Dee Browning/Shutterstock
Another challenge facing banks and other financial institutions in the Bahamas is natural disasters. Hurricane Dorian, which hit the archipelago in 2022, has exacerbated the already low availability of banking services on the outlying islands. It took some credit institutions about a year to restore damaged branches. For several months, people were deprived of the opportunity to make non-cash payments, service loans, and conduct business. The storm also damaged cell towers, further complicating transactions through mobile banking apps. In such a situation, the ability to make transactions without connecting to the network, using the amount reserved in the wallet, became a salvation.
It is too early to talk about the widespread use of the “sand dollar” even within such a small state as the Bahamas (the population of the islands is 321 thousand people), despite the fact that immediately after the launch of digital money they began to be accepted for payment in all shopping centers in the country. The inhabitants of the islands are strongly divided along socio-ethnic lines. Representatives of certain groups may not communicate with outsiders, which makes innovation difficult. But gradually more and more banks and services are connecting to the system, which allows them to accept CBDC from clients. In October 2021, a year after the launch of the “sand dollar,” it was used for the first time to pay salaries. The food delivery service Bahama Eats decided to introduce this innovation by announcing a partnership with the mobile payment system Island Pay. By the end of the year, about 60 people receive salaries using digital wallets.
