TradeTech: The Promise of Panama
In April 2022, the World Economic Forum and the World Trade Organization (WEF/WTO) jointly released a report titled, “The promise of TradeTech: Policy approaches to harness trade digitalization.” In it, the two power agencies call out the need for international coordination and policy making to keep pace with the promises that digitalization and technology are bringing to global trade. Their hope is for this publication to be a catalyst for forward thinking and movement towards advancing technologies such as artificial intelligence (AI), the internet of things (IoT), and blockchain technology.
Policy and Adoption
The report is timely in portraying the international spirit of cooperation needed to propel trade technologies forward. One notable component in the report is the important role that policy making has around the adoption of TradeTech. They stress that a level playing field for all size countries and organizations can be achieved, in part at least, through considerate and deliberate policy making. Since trade is global, synchronized global adoption will be good for all of trade.
To be clear, in trade and trade finance, in particular, there is already an imbalance between those who are able to secure financing and those who cannot. Small-to-medium sized enterprises (SMEs) have long been denied access to traditional financing opportunities that routinely go to larger, more established trade organizations. This has resulted in a $3.4 trillion gap between financing requests and financing made available in the industry. Read more about this problem and a novel solution in this post.
The trade finance gap is a major problem that the trade industry can address with the growth and implementation of trade technologies. As addressed in the WEF/WTO report, policy making and the even adoption of technologies are major considerations in achieving recovery and well-balanced growth in global trade. Technology-neutral trade agreements will be vital as internationally coordinated tradetech policies are developed and implemented in the coming years.
How Cryptocurrencies Provide Structure for Panama
Transparency. While critics are quick to point out the dark money aspects of cryptocurrency, blockchain technology can actually provide more transparency into financial activity. Most transactions settle on a public ledger, and although the digital wallet addresses are not always identifiable by a person’s identity, blockchain analytics platforms and forensics have come a long way in identifying bad actors and addressing criminal activity. For example, there are now much higher success rates in uncovering criminal patterns of on-chain activity and recovery of stolen or dark money. The Colonial Pipeline hack in 2021 involved a ransom note demanding cryptocurrency as payment. Roughly half of the $4.4 million paid in bitcoin was recovered by the F.B.I. and Colonial Pipeline through a blockchain tracking process.
Also, Chainalysis, the investigative digital platform, now offers sanctions wallet screening for the entire cryptocurrency industry, free of charge. Blockchain Intelligence Group delivers an intelligence ecosystem with best-in-class crypto tracking, analytics, risk monitoring, compliance, attribution, visualization and tracking, with which XDC Network is integrated. And while much attention is focused on crypto crime rates, traditional financial crime rates remain far higher.
Financial Inclusion. Although Panama enjoys a relatively strong economy, some statistics hold that one-third to one-half of all Panamanians are unbanked. The country has a high rate of internet penetration which provides fertile ground for crypto adoption among both consumers and businesses. Paying for goods and services with crypto does not require a traditional bank account and the due diligence required by banks to open and maintain the account. Furthermore, a person can trade with crypto through a digital wallet and an initial on-boarding of funds. A wider variety of investment options will come as well.
Regulatory Oversight. For all the struggles El Salvador has had in mandating that businesses must accept bitcoin as legal tender, Panama seems to be taking the right approach with its cryptocurrency legislation. Once signed, the new law will present stark differences in its approach as Panama will broadly allow public and private use of crypto assets but will not require its use or acceptance. Businesses can opt to accept payment in crypto but will not be required to do so. Likewise, citizens can pay their taxes and other obligations in crypto.
The law allows for the issuance of digital securities and the tokenization of assets as well as the creation of new payment systems.
Legal Stability. Through regulatory oversight and guidelines for use, Panama’s neo-crypto industry should attract more economic investments and ideally generate more employment. The government is taking a methodical and regulatory-based approach with the project. Interoperability with its existing banking structure, for instance, will be a hallmark of new crypto business activity there. Instead of cryptocurrency investments replacing bank activity, banks will be encouraged to participate through various integrations, such as on-ramp and off-ramp services to fiat currencies and establishing new payment rails for their customers.
The Ministry of Commerce, the Superintendency of Banks of Panama, the state-owned Banco Nacional de Panamá, the Authority of Innovation of Government (AIG), and the Ministry of Economy and Finance are all participants in this initiative, and they are staking their reputations to boost the country’s status as technological innovators.
A sovereign nation’s adoption of crypto leads to TradeTech opportunities
As more and more countries adopt cryptocurrencies in one form or another, it sends the message that crypto has treaded further into the global monetary system. It increases adoption pressures throughout that country’s economy which can then trickle out globally. And in some cases a country’s adoption of cryptocurrencies may have significant ties to global trade.
Panama, the narrow land (the isthmus) connecting Central and South America, is bordered by both the Atlantic and Pacific oceans. Its man-made Panama Canal is one of the world’s most important shipping passageways and, therefore, a vital component in global trade. As if in lock-step with the WEF/WTO report, Panama’s legislative body approved a bill to regulate the use of cryptocurrencies in the country. Both private and public use was approved, and, at the time of writing, the unanimously passed bill awaits President Cortizo’s signature.
While other countries have approved the use of cryptocurrencies, there are some inherent differences in the way they will be allowed for use in Panama. Firstly, crypto will not become legal tender, and it will not become a requirement for any person or business to use it or accept it. It can, however, be used to pay federal taxes.
In addition, the country carefully curated a selection of currencies for regulated use at the time of writing. The obvious bitcoin and ether made the list, and there are only seven other approved currencies that will be added. They include Algorand, Elrond, IOTA, Litecoin, Stellar, XRP and XDC. Each was chosen for the unique benefits they would bring to Panama’s initiative to leverage this new monetary system for innovation, advanced payment mechanisms, financial inclusion, and global trade. That Panama will now formally regulate and allow the use of cryptocurrencies in addition to its legal tender, means the country is positioned as a model for others to follow suit.
ISO 20022 is a Game Changer for Panama
As Panama seeks to become a hub for innovation, global trade is a natural area of influence for them. The Panama Canal passageway sees roughly 5% of all shipping traffic, and the country’s open shipping registry accounts for 21% of the world’s fleet. Blockchain technologies can enhance trade development by supporting supply chain activities and trade finance. As an important shipping port, business development should increase in Panama City as trade businesses seek regulated and innovative technological solutions.
XDC is one of Panama’s approved cryptocurrencies and is the utility token for the XDC Network — an enterprise-ready public/private blockchain that is efficient, secure, and scalable. The network has seen recent innovative use cases in the area of trade finance. In September 2021, the world’s first trade finance NFT was built on this blockchain, and that tokenization effort opens up the possibility for trillions of dollars in trade financing to become available on an accessible, visible blockchain network in a way it hasn’t been available prior. Panama’s blockchain-friendly and regulated business environment will attract trade businesses that seek these types of financing solutions — important solutions that have not been possible through traditional financial means.
Another notable distinction the XDC Network holds is its compliance with ISO 200022 messaging standards. ISO 20022 is a common language for payment transactions worldwide. It is the message that accompanies a cross-border transfer of funds and provides the receiving institution with the payment details. In November 2022, SWIFT will require all international funds transfers to utilize this new messaging standard. As a blockchain payment rail, the XDC Network is currently one of the select networks capable of handling transactions that can meet this standard. Financial institutions and non-bank financial institutions will seek a stable ISO 20022 provider when exploring blockchain solutions.
Conclusion
Panama strives to be a model of crypto innovation and opportunity. The legislative body’s due diligence can only positively influence the implementation of this initiative. Panama’s promise of TradeTech beckons other countries’ pursuits of thoughtful and responsible cryptocurrency adoption and the benefits blockchain technologies can bring to their economies.
