Note: this is a piece originally written, and unedited since, December 2013 in support of an application for Clifford Chance’s Intelligent Aid program. They never responded.
International law firms should prepare for the biggest disruption in global finance since the rise of the Internet. The increasing prominence of digital currencies such as Bitcoin serves as a sure indication that ‘money’ as we know it is soon to be thrusted firmly into the twenty-first century. Growth in this sector will be felt first in emerging economies, so it is paramount that those law firms who wish to stay relevant in the new, global, Internet economy prepare to meet the rising demand for digital currency related services.
By their nature, digital currencies are decentralised and cross-border, bringing numerous benefits: no more time consuming currency exchanges at the airport or expensive middlemen taking a cut of the transaction. Instant and easy international transfers between individuals and businesses over the Internet, without levy. These are all features of a not too far away financial and commercial reality. But before it is arrived at, a huge amount of work must be done by governments to regulate usage and businesses to implement systems compliantly. It is fundamentally an issue of law, and therefore represents lots of work for a law firm that recognised early the opportunities at hand and responded accordingly.
Emerging economies should be of particular attention because it is activity in these nations that is driving the change. In light of the recent financial crisis, reliance on USD and EUR as a reserve currency is to expose oneself to the decisions of a foreign central bank. As economies such as Brazil, China and Russia account for more and more of the global GDP proportion, holding assets in a neutral currency not linked to any one central bank is increasingly desirable. Shifting the balance of power away from mature Western economies is key to their future growth. This, combined with the obvious benefits to consumers and businesses outlined above, makes the case for digital currencies compelling. It is clear that governments of countries, emerging and mature, will need considerable help with the transition, at both macro and consumer levels.
A prudent, prepared law firm will adapt its strategy to meet increasing global demand. Broadly, this consists of fostering external relationships and facilitating market-leading internal research. It is small, flexible start-ups that lead the way in the field from a technological point of view. Working relationships with such firms can be mutually beneficial: understanding the technology is the key to the law firm’s strategy, while start-ups benefit from the credibility and legal expertise of the law firm. The law firm must then utilise this knowledge internally to help clients at a practical level, bringing law and technology together for sound regulatory and commercial advice.
At the hands of digital currencies, global finance is set to change beyond recognition. As commercial lawyers, we should relish the opportunity to do challenging work at the cutting edge of international trade. To be one of the few experts in this new, exciting field, bridging the gap between regulator, business and consumer, undoubtedly secures the firm a valuable future income stream.