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Finance, central bank chiefs mull digital economy’s challenges

BloombergLONDON/SINGAPORE/TOKYO (Bloomberg) — International Monetary Fund Managing Director Christine Lagarde shone a light on the darker side of fintech developments at the gathering of finance and central bank chiefs from the Group of 20 nations.

While the huge leaps being made in financial services technology help with inclusion and modernizing markets, there are also issues with privacy, competition and market concentration, she said in Fukuoka.

“China’s technology industry is a prime example of this trade-off between benefits and challenges,” said Lagarde. “Over the last five years, technology growth in China has been extremely successful and allowed millions of new entrants to benefit from access to financial products and the creation of high-quality jobs. But it has also led to two firms controlling more than 90 percent of the mobile payments market.”

This presents “a unique systemic challenge” to financial stability and efficiency, she said.

U.S. President Donald Trump’s decision to ditch plans for tariffs on Mexico is a clear positive for the world economy, according to Indonesian Finance Minister Sri Mulyani Indrawati and Bank of Japan Gov. Haruhiko Kuroda.

Indrawati said the move also signaled a broader U.S. willingness to compromise on its trade conflict with China, describing it as “very plus plus” in an interview with Bloomberg Television in Fukuoka.

Speaking separately to reporters, Kuroda said the impact of Trump’s decision reached beyond the two countries involved and would be great for the global economy, though he cautioned that trade-related issues still loomed large on the list of uncertainties for the economic outlook.

The remarks came during a morning devoted to the challenges of raising tax from the digital economy, one of many questions on the minds of G20 finance ministers and central bankers struggling to shore up growth amid trade tensions and a global slowdown.

France’s finance minister Bruno Le Maire said there has to be an international solution to the taxation issue and that the world now has to grapple with how to measure digital activities and the sale, exchange and use of data.

Le Maire said G7 countries will seek a compromise on digital taxation at their next meeting in July in France, which could form the basis of a system for other G20 countries. Once there is a new system, France will scrap its own digital tax, which is based on turnover, taxing the exchange of data and advertising.

But reaching consensus won’t be easy.

“These are complicated issues in a changing environment and something I am sympathetic to,” said U.S. Treasury Secretary Steven Mnuchin. He agreed on the urgency of addressing the matter but not all the ideas being suggested by his counterparts.

Earlier, the prospect of mouth watering new taxation revenues was dangled by OECD Secretary General Angel Gurria. He argued that a push for transparency in the international banking system has already yielded a bonanza in new tax revenue as money crossing borders is declared in a way it previously wasn’t.

Tax dodgers have ‘nowhere to hide’ he told the audience of G-20 officials.

HEROIC BANKERS

‘Central banks are heroes,’ Gurria told Bloomberg Television in an interview. “The question is how much armory do they still have, how many bullets, particularly silver bullets?”

There’ll be plenty of one-on-one meetings over the weekend too, with the most anticipated being one planned between Mnuchin and China’s central bank chief Yi Gang. Whether the two countries can get beyond their current impasse will be keenly watched.

The G-20 finance group has gathered annually since 1999, with Japan taking presidency for the June 8-9 gathering.

The main players will hail from Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, United Kingdom, United States, and the European Union. Others will also attend, including officials from constituencies such as Singapore, Switzerland, as well as from multilateral organizations like the International Monetary Fund.

—With assistance from Saleha Mohsin, Toru Fujioka, Xiaoqing Pi and Enda Curran.

To contact the reporters on this story: Jessica Shankleman in London at jshankleman@bloomberg.net;Michelle Jamrisko in Singapore at mjamrisko@bloomberg.net;Yuko Takeo in Tokyo at ytakeo2@bloomberg.net

To contact the editors responsible for this story: Malcolm Scott at mscott23@bloomberg.net, Brett Miller, Paul Jackson

For more articles like this, please visit us at bloomberg.com

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