Offshore jurisdictions
I am researching the eurodollar markets and offshore jurisdictions. I increasingly think that's the world we're heading to
Some background
If I had to summarize very roughly what my book is all about it’d be the following:
We all want to be happy. Happiness is solving problems. Solving problems is knowledge accumulation. But we can’t create all knowledge by ourselves, so we need to leverage that created by others, which requires cooperation which requires trust, which requires having a theory of the ideas of others around you, which is not scalable.
Scaling that trust is the role of things like culture, i.e. shared ideas, which formalizes itself in rules and protocols that those with the same culture agree with, in other words, institutions. In physical space, consensus is synced or to follow a Bitcoin analogy, “blocks” are generated with every election. We formalize consensus over what rules we want every 4 years or so.
The neutrality of our institutions has always been a challenge except in Western countries. Now it is in the West too because there’s currently a new threat: the loss of homogeneization of our culture since the internet emerged, which is resulting in institutions we don’t feel represented by.
Since our governments don’t understand what’s going on, they feel consensus is being manipulated by some, so they respond by manipulating it themselves in increasingly dictatorial ways. This is resulting in increasing dettachment, loss of trust in our institutions and risking the main reason for the spectacular progress of the last few hundred years.
Ending monopolies
The increasing discontent is because institutions have to be a consequence of culture and culture is again atomizing. There is now way back, there is no “let’s switch the internet off”. Some people start experiencing something similar to a matrix or prison where it is increasingly difficult to publicly share critical ideas.
The prison is real but the ultimate cause is that while before the internet there was one rule formalization process for each culture, now there is one for many. So there is an institutional monopoloy for what it increasingly looks like a very wide spectrum of cultures.
What we need therefore is new ways to increase consensus. I argue in my book that it is the economics of reaching consensus what changes the world. The Sovereign Individual argued that it was the economics of violence but I defend that violence is just the historical way to reach consensus until very recently, in fact it’s the only way internationally even nowadays. Violence is just the ultimate consensus seeking mechanism to our disputes.
So if I’m right, the solution could be to increase the number of ways we can reach consensus. There’s a lot more but to find out my book is near.
The example of offshore jurisdictions
Given my job, I wanted to explore how the eurodollar markets work and what if any impact it could have on capital markets on blockchains and I have found it fascinating for how well it validates the idea of multiplying different “consensuses” with alternative institutions.
In the 1950s for several reasons the UK prevented its offshore outposts to lend British pounds, so they moved to dollars. Those dollars where outside the control of the USA monetary authority. Think of it as a parallel bookkeeping mechanism.
The demand for banking services without the restrictions of the US authorities simply exploded. Sometimes it was privacy, some times tax evasion but very frequently too, simply people from countries with poor rule of law trying to protect their wealth.
In other words, if you were wealthy enough and could afford offshore services and if you didn’t like your local rules, you could choose different ones to protect your wealth.
Turns out, this is not a minor problem: nearly 80% the world’s population doesn’t live in countries with a Western culture of criticism and error correction, which results in a chronic inability to embed knowledge into better rules and protocols, so they need alternative institutions.
This created several trends:
Multiple small jurisdictions saw the opportunity to become attractive with better regulation for some industry, so competition skyrocketed to become the best.
It even forced the US to become an actual “tax haven” providing even secrecy and multiple advantages that competed with offshore jurisdictions.
The UK was fine since it provided simply kind of “sandboxed” environments for parallel bookkeeping which created a torrent of revenues for London banks and financial companies.
Blockchains
Blockchains actually exacerbate this trend because they multiply the set of rules and protocols available for users worldwide, except this time, you don’t need to be obscenely wealthy to afford those offshore services.
You can already enjoy ownership of digital gold aka Bitcoin, digital dollars (stablecoins) and tokenized securities which is what I am now working on.
This means that as the Digital Path paper foresaw decades ago, these computer networks will increase the global competition to become simply better sets of rules and protocols whose credibility will be enforced with software and cryptography.
The digital ones consequently decrease the monopoly power of the current governments and increase their incentives to become better and more attractive for their citizens.
And that incentive, when big enough, will be the final push to increase the number of physical consensuses too, because governments will have to fight for tax revenues and the exit costs that forced so many in the past to emigrate are being obliterated.
So I think the Sovereign Individual got it right but only partially for the right reasons. If you want to understand the right ones, stay tuned.