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1041. The next generation of digital currencies: in search of stability

Author:
Gregory Claeys and Maria Demertzis
Publication Date:
12-2019
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
Four major developments have challenged the status quo and reopened the debate on the forms that money will take in the future: 1) use of cash as a medium of exchange has declined; 2) distributed ledger technology (DLT) has led to the emergence of thousands of digital cryptocurrencies; 3) some global tech giants are planning to provide private digital currencies to their billions of users in the form of stablecoins; and 4) in turn, public authorities are thinking about providing their own digital currencies to the general public. These developments raise questions about the implications for financial stability, the transmission of monetary policy and financial intermediation. This Policy Contribution focuses on the consequences stablecoins and central bank digital currencies could have. Stablecoins, such as Facebook’s Libra, differ from earlier generations of cryptocurrencies in three fundamental ways. First, they would start with large networks of users and global accessibility, two pivotal features for the critical uptake of a new currency. Second, given the current limitations of DLT, including in terms of energy efficiency, new stablecoins would rely on (more) centralised systems to validate transactions. Third, stablecoins would focus particularly on reducing the volatility in the value of the new currency. These new features of stablecoins attempt to correct some of the critical deficiencies identified in first-generation cryptocurrencies, which meant they did not acquire the main functions of money. However, new stablecoins raise other questions and potentially create new problems. One issue could arise from the more centralised (permissioned) validation system, which could lead to collusion problems. Another issue could arise from the reserve system that is supposed to ensure the stability of stablecoins, such as Libra, which could be incompatible with the profit maximisation behaviour of a private issuer. Facebook’s Libra plan has been a wake-up call to central banks and governments which, afraid of losing their monetary sovereignty, have renewed their interest in central bank digital currencies (CBDCs) as a potential solution. CBDCs could make private digital currencies less attractive and slow down their adoption. But there are other reasons to give the general public access to central bank liabilities. One important reason to provide CBDCs to citizens is that if cash disappears, citizens will lose direct access to sovereign money. Another benefit of the introduction of CBDCs is that monetary policy could be strengthened by transmitting it directly to the general public. However, the introduction of CBDCs could also be disruptive and create risks. In particular, CBDCs could have major consequences for financial intermediation. These risks would have to be evaluated by policymakers before any decisions are taken. If CBDCs are introduced, central banks would have to carefully calibrate their properties to minimise these risks. But, eventually, if these risks – and in particular the risk of structural financial disintermediation – do materialise, central banks would have various instruments to counter them.
Topic:
Science and Technology, Central Bank, Currency, Cryptocurrencies, and European Parliament
Political Geography:
Europe

1042. The Road to Digital Unfreedom: President Xi’s Surveillance State

Author:
Xiao Qiang
Publication Date:
01-2019
Content Type:
Journal Article
Journal:
Journal of Democracy
Institution:
National Endowment for Democracy
Abstract:
Since President Xi Jinping came to power in 2012, China has significantly increased controls over its already censored cyberspace—with a ruling that will allow jail terms for spreading “rumors” online, a cybersecurity law that will facilitate state control and data access, crackdowns on unauthorized VPN connections, and emphasis on the concept of “internet sovereignty.” At the same time, technological innovations in such areas as big-data analytics, artificial intelligence, and the Internet of Things are increasingly being harnessed to monitor the lives and activities of China’s 1.4 billion people. The new arsenal of the Chinese surveillance state includes mass video-surveillance projects incorporating facial-recognition technology; voice-recognition software that can identify speakers on phone calls; and a sweeping and intrusive program of DNA collection. In addition, officials are at work on a nationwide Social Credit System (SCS) intended to assess the conduct of every Chinese citizen.
Topic:
Science and Technology, Authoritarianism, Social Media, Surveillance, and Digital Culture
Political Geography:
China and Asia

1043. Preparing for “NATO-mation”: the Atlantic Alliance toward the age of artificial intelligence

Author:
Andrea Gilli
Publication Date:
02-2019
Content Type:
Working Paper
Institution:
NATO Defense College
Abstract:
The unprecedented pace of technological change brought about by the fourth Industrial Revolution offers enormous opportunities but also entails some risks. This is evident when looking at discussions about artificial intelligence (AI), machine learning (ML) and big data (BD). Many analysts, scholars and policy- makers are in fact worried that, beside efficiency and new economic opportunities, these technologies may also promote international instability: for instance, by leading to a swift redistribution of wealth around the world; a rapid diffusion of military capabilities or by heightening the risks of military escalation and conflict. Such concerns are understandable. Throughout history, technological change has at times exerted similar effects. Additionally, human beings seem to have an innate fear that autonomous machines might, at some point, revolt and threaten humanity – as illustrated in popular culture, from Hebrew tradition’s Golem to Mary Shelley’s Frankenstein, from Karel Čapek’s Robot to Isaac Asimov’s I, Robot and the movie Terminator. This NDC Policy Brief contributes to the existing debate by assessing the logic behind some of these concerns and by looking at the historical record. While some worries are warranted, this brief provides a much more reassuring view. The implications are straightforward: NATO, its member states and partners should not be afraid of ongoing technological change, but embrace the opportunities offered by new technologies and address the related challenges. In other words, the Atlantic Alliance should start a new transformation process directed toward the age of intelligent machines: it should start with what I call “NATO-mation”. The goal is not only preserving and enhancing NATO’s military superiority and thus better contribute to global security in the decades ahead but also ensuring that its values, ethical stances as well as moral commitments will remain central in a rapidly- changing security environment.
Topic:
NATO, Regional Cooperation, Science and Technology, Military Strategy, and Artificial Intelligence
Political Geography:
Europe, North Atlantic, and North America

1044. The Brain and the Processor: Unpacking the Challenges of Human-Machine Interaction

Author:
Andrea Gilli
Publication Date:
12-2019
Content Type:
Working Paper
Institution:
NATO Defense College
Abstract:
This volume touches upon this and a set of related messages that ultimately put human beings at the very center of this transformation toward intelligent machines: one of the paradoxes of the second machine age – as Erik Brynjolfsson and Andrew McAfee call it – is in fact that the more tasks computers take over, the more important becomes the role of people.4 Technology replaces tasks, not human beings, and human beings at each round of automation specialize in the tasks with higher added value.5 In other words, technological changes tend to complement human activities, enabling people to specialise in those areas where they have a comparative advantage. However, the transition is not bereft of problems: new skills and new organizational structures are needed to exploit the potentials of new technologies. The emergence of artificial intelligence, machine learning and big data – that in this volume will be interchangeably used alongside terms such as intelligent machines – can potentially represent a major turning point in human history. For the moment, we are dealing – and we will likely continue to do so – with weak or limited AI, namely single- purpose systems, i.e. machines that may reach an outstanding performance in one realm but cannot even fulfill the most basic task in a related field.6 Strong, or general, artificial intelligence – also referred as singularity – will occur when machines will, like human beings, be able to conduct a plurality of multidimensional activities, from driving a car to empatizing with peers, from playing video games to conducting different work activities.7 The contributions in this volume attempt to map the underlying causes, direct implications and broader consequences of the transformation at hand. Their main collective value is that they adopt different, but complementary approaches that ultimately corroborate the underlying theme of the entire volume, namely that as machines become more capable and easily available, the more important become human beings. The world of defense and security often looks with both amazement and concern at other fields. It rarely, however, truly engages with them, also intellectually. Building on a conference jointly organised in December 2018 between the NATO Defense College Research Division and the Paris-based Institut de Recherche Stratégique de l’Ecole Militaire, this volume has tried to address this shortfall by bringing together defense scholars and security practioners, economists and psychologists, historians and lawyers as well as business consultants and roboticists with the goal of looking from different angles at the domain of AI and reason, together, on its possible meanings and consequences.
Topic:
NATO, Regional Cooperation, Science and Technology, and Artificial Intelligence
Political Geography:
Europe, North Atlantic, and North America

1045. Imitation, innovation, disruption: challenges to NATO's superiority in military technology

Author:
Andrea Gilli and Mauro Gilli
Publication Date:
12-2019
Content Type:
Working Paper
Institution:
NATO Defense College
Abstract:
Analysts, academics and observers are worried that NATO countries may lose their industrial leadership in defence production. Globalization and advances in communications are widely believed to enable enemies and adversaries alike to copy NATO countries’ state- of-the-art weapon systems, and possibly even surpass them by developing next-generation weapon systems. Moreover, so-called disruptive technologies like artificial intelligence, quantum computing and additive manufac- turing are believed to offer cheaper and less technologi- cally demanding options to countries that do not possess the decades’ old defence industrial base of NATO coun- tries. These countries could then use such new technolo- gies for weakening NATO force structure. These concerns are real and deserve close scrutiny. However, adversaries and competitors still face signif- icant challenges which are more insidious than those NATO countries are facing. Because of the complexity of modern technology, imitation, innovation and disruption in armaments production have become increas- ingly demanding over the past decades – especially for naval and aerial platforms intended to operate in com- petitive environments. For NATO this implies more tar- geted defence investments and exploitation of industrial specialisation across the Alliance, as well as experimen- tation and innovation with new technologies to favour their future integration into the NATO force structure.
Topic:
Defense Policy, NATO, Globalization, Regional Cooperation, Science and Technology, and Military Strategy
Political Geography:
Europe, North Atlantic, and North America

1046. A candle in the dark: US national security strategy for artificial intelligence

Author:
Tate Nurkin and Stephen Rodriguez
Publication Date:
12-2019
Content Type:
Working Paper
Institution:
Atlantic Council
Abstract:
AI is expected to have a transformational impact on the future of geopolitics, defense, and security. The emerging geopolitical and security context influencing the future of AI technology development has been driven by the erosion of traditional geopolitical frameworks, increased conflict between liberalism and authoritarianism, the pervasiveness of social media use and 4IR-driven digitization of industries, as well as the ability of more actors to affect strategic and operational environments. However, the future of AI will depend on the decisions of great power competitors—the US, China and Russia—global trends development, and the management of uncertainties associated with emerging technologies. In this fluctuating environment, where the US is engaged in a high-stakes competition with is near-peer adversaries, and AI is enabling paradigm-shifting changes in public and private sector operations, how should the US respond? In this new Atlantic Council Strategy Paper, A Candle in the Dark: US National Security Strategy for Artificial Intelligence, Tate Nurkin and Stephen Rodriguez provide an integrated strategy to respond to this key issue. According to Former US Secretary of Defense Dr. Ashton B. Carter, author of the foreword, this paper “effectively articulates the current technological landscape and offers a coherent strategic framework for the United States and its allies to harness AI’s upside potential, while mitigating downside risks and defending against emerging threats.” In a world full of uncertainties, this paper provides a holistic way forward for the US to leverage the full potential of AI while maintaining America’s technological competitiveness.
Topic:
Defense Policy, NATO, Intelligence, National Security, Science and Technology, Cybersecurity, Entrepreneurship, Drones, Conflict, and Disinformation
Political Geography:
Russia, China, Eurasia, Asia, North America, and United States of America

1047. Aviation cybersecurity: Scoping the challenge

Author:
Pete Cooper, Simon Handler, and Safa Shahwan Edwards
Publication Date:
12-2019
Content Type:
Special Report
Institution:
Atlantic Council
Abstract:
In the past decade, the aviation industry has reaped the benefits of digitization. With the aircraft efficiency gains and enhancements to the passenger experience catalyzed by new technologies, we have to acknowledge the corresponding new risks, including social and technical vulnerabilities never before addressed. In 2017, the Atlantic Council released its ground-breaking report, Aviation Cybersecurity—Finding Lift, Minimizing Drag. The report raised awareness on the state of cybersecurity in the aviation industry, sparking public dialogue on the intersection of cybersecurity and aviation. This created a foundation for the aviation community to convene around protecting the traveling public. Since then, it has become evident that anticipating, identifying, and mitigating cyberspace vulnerabilities in aviation will require the buy-in of all stakeholders in this ecosystem. Two years on, Thales is honored to continue its support for the Atlantic Council and this crucial initiative that aims to map perspectives on cybersecurity across this diverse industry and highlight the growing need for collaboration across stakeholders. Ultimately, there is no silver bullet for aviation cybersecurity, and confronting cyber risk in aviation will require a global approach, working across safety, security, cybersecurity, and enterprise IT. This report and the accompanying global survey developed by the Atlantic Council will increase our holistic understanding of aviation cyber risk and drive meaningful engagement across the aviation community. This effort to broaden the community of stakeholders examining cybersecurity in aviation will increase our collective security, safety, and resilience. When it comes to the trust of travelers, we are all only as strong as those most vulnerable among us. It is only through mutual understanding and collaboration that we can continue to challenge one another, grow, and improve. I applaud the Atlantic Council for embracing this topic and am proud Thales has the chance to support this work.
Topic:
International Organization, Science and Technology, Infrastructure, Cybersecurity, Innovation, and Aviation
Political Geography:
Global Focus

1048. What do we know about cyber escalation? Observations from simulations and surveys

Author:
Benjamin Jensen and Brandon Valeriano
Publication Date:
11-2019
Content Type:
Policy Brief
Institution:
Atlantic Council
Abstract:
Do cyber operations alter how states respond to international crises in a way that creates incentives for decision makers to cross the Rubicon and use military force to settle disputes? This question is central to current cyber strategy debates and the idea of persistent engagement and defending forward in cyberspace. The answer is surprising: no. Based on the evidence, cyber operations offer a valuable escalatory offramp.
Topic:
Security, Science and Technology, Cybersecurity, and Crisis Management
Political Geography:
Global Focus

1049. A new Sino-Russian high-tech partnership

Author:
Samuel Bendett and Elsa Kania
Publication Date:
10-2019
Content Type:
Special Report
Institution:
Australian Strategic Policy Institute (ASPI)
Abstract:
What’s the problem? Sino-Russian relations have been adapting to an era of great-power rivalry. This complex relationship, categorised as a ‘comprehensive strategic partnership of coordination for a new era’, has continued to evolve as global strategic competition has intensified.1 China and Russia have not only expanded military cooperation but are also undertaking more extensive technological cooperation, including in fifth-generation telecommunications, artificial intelligence (AI), biotechnology and the digital economy. When Russia and China commemorated the 70th anniversary of the establishment of diplomatic relations between Soviet Union and the People’s Republic of China in October 2019,2 the celebrations highlighted the history of this ‘friendship’ and a positive agenda for contemporary partnership that is pursuing bilateral security, ‘the spirit of innovation’, and ‘cooperation in all areas’.3 Such partnerships show that Beijing and Moscow recognise the potential synergies of joining forces in the development of these dual-use technologies, which possess clear military and commercial significance. This distinct deepening of China–Russia technological collaborations is also a response to increased pressures imposed by the US. Over the past couple of years, US policy has sought to limit Chinese and Russian engagements with the global technological ecosystem, including through sanctions and export controls. Under these geopolitical circumstances, the determination of Chinese and Russian leaders to develop indigenous replacements for foreign, particularly American technologies, from chips to operating systems, has provided further motivation for cooperation. These advances in authoritarian innovation should provoke concerns for democracies for reasons of security, human rights, and overall competitiveness. Notably, the Chinese and Russian governments are also cooperating on techniques for improved censorship and surveillance and increasingly coordinating on approaches to governance that justify and promote their preferred approach of cyber sovereignty and internet management, to other countries and through international standards and other institutions. Today’s trends in technological collaboration and competition also possess strategic and ideological implications for great-power rivalry. What’s the solution? This paper is intended to start an initial mapping and exploration of the expanding cooperative ecosystem involving Moscow and Beijing.4 It will be important to track the trajectory and assess the implications of these Sino-Russian technological collaborations, given the risks and threats that could result from those advances. In a world of globalised innovation, the diffusion of even the most sensitive and strategic technologies, particularly those that are dual-use in nature and driven by commercial developments, will remain inherently challenging to constrain but essential to understand and anticipate. To avoid strategic surprise, it’s important to assess and anticipate these technological advancements by potential adversaries. Like-minded democracies that are concerned about the capabilities of these authoritarian regimes should monitor and evaluate the potential implications of these continuing developments. The US and Australia, along with allies and partners, should monitor and mitigate tech transfer and collaborative research activities that can involve intellectual property (IP) theft and extra-legal activities, including through expanding information-sharing mechanisms. This collaboration should include coordinating on export controls, screening of investments, and restrictions against collaboration with military-linked or otherwise problematic institutions in China and Russia. It’s critical to continue to deepen cooperation and coordination on policy responses to the challenges and opportunities that emerging technologies present. For instance, improvements in sharing data among allies and partners within and beyond the Five Eyes nations could be conducive to advancing the future development of AI in a manner that’s consistent with our ethics and values. Today, like-minded democracies must recognise the threats from advances in and the diffusion of technologies that can be used to empower autocratic regimes. For that reason, it will be vital to mount a more unified response to promulgate norms for the use of next-generation technologies, particularly AI and biotech.
Topic:
International Relations, Diplomacy, Science and Technology, Power Politics, and Partnerships
Political Geography:
Russia, China, Eurasia, and Asia-Pacific

1050. Tweeting through the Great Firewall: Preliminary analysis of PRC-linked information operations against the Hong Kong protests

Author:
Tom Uren, Elise Thomas, and Jacob Wallis
Publication Date:
09-2019
Content Type:
Special Report
Institution:
Australian Strategic Policy Institute (ASPI)
Abstract:
On August 19th 2019, Twitter released data on a network of accounts which it has identified as being involved in an information operation directed against the protests in Hong Kong. After a tip-off from Twitter, Facebook also dismantled a smaller information network operating on its platform. This network has been identified as being linked to the Chinese government. Researchers from the International Cyber Policy Centre (ICPC) at the Australian Strategic Policy Institute have conducted a preliminary analysis of the dataset. Our research indicates that the information operation targeted at the protests appears to have been a relatively small and hastily assembled operation rather than a sophisticated information campaign planned well in advance. However, our research has also found that the accounts included in the information operation identified by Twitter were active in earlier information operations targeting political opponents of the Chinese government, including an exiled billionaire, a human rights lawyer, a bookseller and protestors in mainland China. The earliest of these operations date back to April 2017. This is significant because—if the attribution to state-backed actors made by Twitter is correct—it indicates that actors linked to the Chinese government may have been running covert information operations on Western social media platforms for at least two years.
Topic:
Science and Technology, Internet, Social Media, and Protests
Political Geography:
China, Asia, and Hong Kong