MIT Connection Science, in collaboration with the World Leadership Alliance and the Boston Global Forum, is working to bring about a new paradigm in global trade, finance, and governance systems. With tools to securely collect, share, and analyze data, governments and communities can build better systems for health, monetary exchange, economic development, trade, and more. Global leaders are beginning to call for a rethinking of old governance systems, which are no longer meeting the challenges of the times.
As the UN celebrates its 75th anniversary and the G20 convenes this fall in Saudi Arabia, the Connection Science Group is co-leading many conversations and working with the World Leadership Alliance, World Bank, World Economic Forum and other multilateral organizations to help them better understand how tools such as digital currencies and digital logistics can provide greater transparency, accountability, and effectiveness. The group has created and implemented experiments around the world showing how technologies can safely revamp outdated systems and institutions.
Reimagining Bretton Woods
In 1944, world leaders from 44 nations convened at the Mount Washington hotel in Bretton Woods, NH in an attempt to heal and revitalize the world economy following WWII. The solutions they developed were not perfect, but they laid the foundations for the global financial systems and multilateral organizations that still exist and shape the world today, including the International Monetary Fund and the International Bank for Reconstruction and Development (precursor to the World Bank). The Bretton Woods accord helped bring stability to a turbulent world ravaged by conflict. However, the relative stability of global economic policy is today giving way to renewed turmoil.
“Unfortunately,” says Connection Science Director, Prof. Sandy Pentland, “the systems and institutions established at Bretton Woods are proving too slow and too siloed to address the world’s current problems. Not since WWII have public debt and the national economies of so many nations been in such disarray.”
Today the world faces several interlinked digitalization challenges where multilateral coordination, particularly coordination supported by industry, could make a fundamental and positive contribution. To date, the rapid adoption and scaling of digitalization has been one of the drivers for resilience and response. With the accelerated adoption of technology, key actors throughout the digital ecosystem (including OECD, World Bank, UN, TCFD, GRI and countless businesses, academic institutions and NGOS) have strengthened their collaborative efforts to drive material change for some of the most difficult challenges. However, these efforts are mostly uncoordinated, with no overall architecture.
As a consequence, world leaders and multilateral organizations are beginning to discuss the idea of a new Bretton Woods accord—one that leverages new digital technologies to improve multilateral coordination and renovate existing multilateral organizations. Technologies available today that could only be dreamed of 75 years ago hold the potential to dramatically reshape financial systems. These powerful tools, such as blockchain ledgers and artificial intelligence, could lead to much greater transparency, efficiency, and public trust.
However, if misused, these same technologies could also increase disparity and corruption. It follows then, that not only do financial systems need to be updated, but the world also needs a new set of shared values around the use of these new technologies. To that end, the Connection Science Group has conducted extensive large-scale experimental research on ensuring fairness, inclusiveness, and stability in digital systems (http://connection.mit.edu/publications ). The group has also helped create a Social Contract for the AI Age, endorsed by members of the World Leadership Alliance and leading academics, which will be the subject of discussion at the UN’s 75 anniversary. These global experiments and new social contract provide important building blocks for a new era of multilateral cooperation and prosperity.
What needs to be done?
At the heart of discussion at Bretton Woods in 1944 was the desire to stabilize global exchange rates, allowing for improved trade and development, and avoiding the kind of hyper-inflation and catastrophic economic failures that partially led to WWII. By the end of the conference, attendees had agreed to fix exchange rates to the US dollar, which in turn was originally backed by gold. The result has been that most economies revolve around central and large corporate banks, which have had sufficient assets to back their lending.
Today the need is more broad: we not only need better financial systems, we need health systems, better social support systems, and better cybersecurity and privacy systems. In the past decade, digital tokens, blockchain ledgers and other digital technologies have been touted as a possible democratizing force that could allow individuals to securely enter into transactions with one another. However most of these proposals have been impractical for large-scale deployment, and have never been tested in the real world.
To address the need for a trustworthy and efficient trade, health, data, and currency systems, the Connection Science Group has created the Trust Data Alliance, with membership consisting of countries, multilateral organizations, and multinational corporations (http://trust.mit.edu). Through this research and development, alliance technologies such as Tradecoin, Open Algorithms, and Distributed Digital Identity have been created–see http://trust.mit.edu/research.
The Tradecoin architecture has been drawn upon to create the Swiss Trust Chain (https://www.swisscom.ch/en/about/company/innovation/blockchain.html), allowing trade of digital assets and supported by SwissPost and SwissCom. Tradecoin was also a model for the creation of Libra, but unfortunately without the appropriate governance mechanisms.
OPAL (Open Algorithms) is the architecture used in Akoya (https://www.akoya.com/), a Fidelity Investments spin-off that allows movement of customer assets between financial institutions while protecting personal data. The same architecture is used for international development projects that support the UN Sustainable Development Goals (see https://opalproject.org).
The Distributed Digital Identity architecture underlies the recent Digital Currency released by Bermuda (https://cointelegraph.com/news/the-bahamas-launches-world-s-first-cbdc-the-sand-dollar), as well as the digital identity architecture being deployed by Mastercard in countries such as Australia (https://mastercardcontentexchange.com/newsroom/press-releases/2019/decem…).
In addition, Connection Science and its partners have supported construction of Living Labs to test how to use these new types of systems to support disadvantaged communities and rebuild cities’ economies.The first stages of such a Living Lab can be seen at http://opportunity.mit.edu.
Building New Global Systems for Trade, Finance and Governance
Experiments like the ones described above show the promise of applying new technologies for the development and betterment of societies around the world. However, they also have the potential to be misused and further consolidate power in the hands of the few, which is why Prof. Pentland took a pioneering role in creation of GDPR (see https://hd.media.mit.edu/wef_globalit.pdf) and why Connection Science supports many projects whose goal is to harness the power of data and Artificial Intelligence (AI) for citizens and communities. Prof. Pentland is also on the Board of Directors for the UN’s Global Partnership for Sustainable Development Data, and is on advisory boards for the UN Secretary General’s office.
Perhaps the first challenge to be addressed by any new system for digital governance is repairing the world’s tattered finances. Current levels of public debt are at levels not seen since World War II, and simultaneously national economies are in disarray. If nations do not cooperate, we risk a “race to the bottom” as countries competitively devalue their currencies, and smaller nations will suffer the most. Moreover, unlike at the end of World War II, the deployment of these new digital trade platforms will provide nations with possibilities for beggaring their neighbors in ways that are far less visible than an official devaluation.
This suggests that a new “Bretton Woods” multilateral effort is required, with the goal of renovating multilateral institutions using the more efficient, secure, and inclusive digital platforms that are analogous to those developed by Singapore and Switzerland. Unlike the World War II effort, such coordination must not only be centered around banking and finance, but must include health, education, trade, tax, and social support systems. It must also conform to digital technical standards such as created by the IEEE, and attend to the computational social science needed to measure and forecast interactions between finance, sustainability, and social factors. To accomplish this harmonization of digital systems Connection Science is continuing its work with the World Leadership Alliance, the UN Foundation, the World Bank, the IEEE, and foundations such as the Boston Global Forum to convene world leaders in a new Bretton Woods process.