IIF Authors

Status: Will be live at 04/19/2022 13:13

Strategic Framework for Digital Economic Cooperation - A Path for Progress

International rules of the road for the digital economy continue to be elusive while national restrictions on the flow of data proliferate. We are rapidly reaching an inflection point where data localization requirements and fragmented standards for data and privacy may begin to break the on-demand services and real-time systems that we have come to expect and rely on.

This is an increasing problem for the broad-based economy including dynamic startups, small and medium sized enterprises (SMEs) and other high-growth sectors which are driven by global digital infrastructure to support their activities. Recent years have revealed problems with privacy, security, monetization and taxation in the digital economy. Policy responses have been rapid, fragmented, and poorly coordinated at the international level. Data localization measures, a lack of coordination of data governance requirements, hastily drafted privacy laws, digital identity efforts without interoperability standards, far-reaching AI regulation, and an overall lack of coordination threaten to choke the future of the digital economy.

The international financial services industry has much at stake if the current trajectory continues. Protectionist localization measures could hinder the efficiency of international finance and the viability of some business models. The financial services industry also has a leading role to play in advancing solutions. It operates globally within a well-developed web of international regulatory bodies, using data to provide nearly instantaneous payments for individuals and companies, and using AI to prevent both small-scale fraud and sophisticated financial crime. Financial service firms are well-placed to explain how data can be used to promote economic opportunity, competition, and security, and to work with policymakers to shape smart regulations that foster data flows while guarding against potential harms.

This IIF staff paper is part of a series that began with Data Localization: Costs, Tradeoffs, and Impacts Across the Economy looking at the broad based impacts of data localization. In October 2021 we published Strategic Framework for Digital Economic Cooperation – State of Play which outlined the problems drawing attention to the potential harm that the global march towards a fragmented and isolated digital economic landscape could bring. In this paper we present a framework to inform debate and suggest five areas of focus to drive progress:

1. Leadership & Coordination – from international bodies against fragmentation, duplication, and conflict.
2. Knowledge & Skills - new digital expertise is required in the public and private sectors
3. Regulatory Architecture - consistent for activities across different sectors and borders
4. Protocols & Standards- interoperability for data flow, safety, and privacy.
5. Digital Trade Enablement - encourage agreements between like-minded economies