Digital Euro: Prospects for the Future and the Threat of Deglobalization

Chapter And Authors Information

Rustam Azimov

General Director, Joint-Stock, Export-Import Insurance Company “Uzbekinvest”

Digital Euro: Prospects for the Future and the Threat of Deglobalization

From the Edited Volume

Transformation of the Insurance Business in Countries with Transition Economies (Based on Uzbekistan Experience)

DOI: 10.51432/978-1-914266-62-1

Content

Prospects for Innovation in the Technological, Economic and Product Spheres of Insurance in Uzbekistan

Innovations in the technological, economic and product areas of insurance are a complex phenomenon that requires comprehensive study and assessment. There is no single approach to defining innovations in insurance among domestic and foreign researchers. A. N. Zhilkina believes that “insurance innovations assume the presence of such improvement aspects as improving the quality of consumer utility characteristics; scientific and technological novelty; controllability; risk tolerance; cost-effectiveness; efficiency; socio-economic significance; production feasibility; commercial applicability.” (Zhilkina, n.d.). In the studies of M.A. Mirsadykov, it is accepted that innovation is “the profitable use of innovations in the form of new technologies, types of products and services, organizational, technical and socio-economic decisions of a production, financial, commercial, administrative or other nature. In other words, “innovation” is interpreted as the transformation of potential scientific and technological progress into real progress, realized in new products and technologies.” (Mirsadykov, 2010, p. 55).

According to N.E. Savvina “Innovations in insurance are commercial, technical, financial, organizational and social changes in society and the state, leading to creation of a new insurance product. The essence and content of innovations in the insurance business are based on the methodological foundations of innovation theory, taking into account the properties and functions of innovations, laws and patterns of innovation processes, the specifics of innovation management, etc.” (Savvina, 2014, pp. 74-83). Yu.T. Akhvlediani focuses on the fact that “the formation of a modern model for the insurance business development depends on the introduction of modern innovative insurance technologies and the improvement of insurance legislation” (Akhvlediani, n.d.).

In turn, Aksyutina S.V. suggests that “the innovative activities of insurance companies imply a transition to a customer-oriented model of conducting insurance business, internetization of the insurance business, the introduction of new products, the use of digital technologies and new channels in the sale of insurance products and new ways of insurance losses settlement” (Aksyutina, 2020, pp. 395-407).

Summarizing the above, we can assume that innovations in insurance are new insurance products and insurance technologies obtained through the use of scientific ideas and knowledge, improving systems for promoting insurance products and settling insurance claims, and generally improving the system of communications between insurance activities professional participants. Thus, the definition of “innovation in insurance” in this study means the modernization of society and the state leading to changes in existing or developing new insurance product to more fully meet the needs of individuals and legal entities for insurance protection and expanding the use of insurance mechanisms for effective management risks of individuals and legal entities.

Currently, a unique situation has created in Uzbekistan: within comprehensive processes of modernization of the country’s socio-economic sphere, the newest and most advanced communication technologies are being introduced into the daily life of the residents of Uzbekistan. The country’s population is being drawn into the use of new technologies and means of communication, while there is an explosive growth of participants in Internet networks, forums, and online magazines. It should be noted that in the field of insurance services in Uzbekistan, as well as throughout the world, the number of online services is growing; a significant part of potential clients of insurance companies use Internet resources as primary sources of information on insurance services. A survey we conducted among students of the Banking and Finance Academy of the Republic of Uzbekistan revealed that a significant part of potential clients would like to see video presentations of insurance products and services on the websites of insurance companies, and to be able to purchase them.

It should be noted that the Academy participants are middle managers aged from 25 to 40 years old, rather financially secure, mostly family people, who have realized the importance of insurance and want and, what is important, can use the insurance institution as a way of financial protection of themselves and their families from unexpected events. These are those potential policyholders who will buy an insurance policy themselves, if they are interested in something, the priority in working with this group should be the preparation of customer-oriented insurance products and conveying information about it through the Internet and mobile communication to the target audience.

At the present stage of the insurance market development, as some researchers note, the behavioral psychology of financial services potential users, including insurance, is determined by Internet networks and online communication (Sakai, 2011).

These trends in the development of buying behaviors and attitudes, as well as the corresponding reaction to them by the insurance companies, forced to make significant innovations in the field of insurance products themselves and methods of their presentation and sale, cause substantial change in the style of domestic insurers operations. Considering that the country’s population exceeds 36 million people, and the number of small businesses and private entrepreneurship in our country has doubled in recent years, this problem can be effectively solved using big data technologies.

In a broad sense “big data” technology is spoken about as a socio-economic phenomenon associated with the emergence of technological capabilities to analyze huge amounts of data (Viktor Mayer-Shenberger & Kenneth Kuk’er, 2014).

Application of “big data” technology by domestic insurance companies in the processes of collecting, processing and analyzing incoming information gives them competitive advantages, ensures the technologization of basic production processes, and creates a comfortable information environment for potential clients (Big data, 2016). However, the use of “big data” technology leads to significant complication of the data processing process and increases the requirements for the technologies, hardware and software products used for this, and this, in turn, leads to a significant increase in the qualification requirements for employed staff.

The use of “big data” technology in the collection and processing of available information and subsequent analysis of the insurance market state allows us to develop and apply universal algorithms to solve specific problems – identifying development trends in various sectors of the insurance market, establishing the determining factors for the insurance activities efficiency, solving bottlenecks in the domestic insurance business (Milovidov, 2015). The positive role of the state in the insurance development is undoubted, but, as the experience of developed countries shows, such insurance can only achieve high-quality development if private capital predominates in the insurance market. However, at present, the financial possibilities and capital adequacy indicators of a significant part of non-state insurers are limited and do not allow them to invest significant funds in long-term and high-risk innovative projects peculiar to modernized economy. In this regard, innovations in the use of insurance mechanisms to manage the risks of individuals and legal entities are today insufficiently represented.

At the present stage of the domestic insurance market development, the widespread introduction of innovations in insurance activities is prevented by such unresolved issues as: narrow choice of investment instruments available to local insurers to invest temporarily available funds and, as a consequence, low return on investment and limited opportunities for financing innovation; insufficient development level of the insurance market infrastructure, restraining innovative insurance products for a wide range of potential policyholders (small number of channels for promoting insurance services to the population); insufficient number of specialists capable to develop and sell innovative insurance products; low awareness of potential policyholders about advantages of innovative insurance products and, as a result, low demand for them.

Significant risks arise in the activities of the insurer when developing and selling innovative insurance products due to the high degree of uncertainty of the results of this activity, and both positive and negative results from the introduction of innovations are possible, but the positive result can be many times greater than with the usual conducting business.

Insurance products are distinguished according to the innovation degree: insurance products with completely new niche innovations, their number is limited due to their fairly high cost; insurance products with combined innovations (most often these are packaged insurance products combining the advantages of several insurance products in demand); insurance products with “modifying innovations” (improved insurance products previously offered on the insurance market) (Mirsadykov, 2010).

Most often, innovation is carried out in the product area of the insurance market. It is explained by insurance interests changes in the conditions of a modernized economy. In turn, insurance interests’ changes are driven by changes in the socio-economic situation in society.

In the framework of this study, it is accepted that product innovations are aimed at improving the provision of basic services, and technological innovations relate to improving the provision of auxiliary services within the framework of the insurance agreement. Product innovations are carried out by domestic insurers in two ways: insurance company creates a fundamentally new insurance product having consumer qualities that did not exist before with no analogues existing either in domestic or foreign practice; improvement of present insurance product by providing it with new consumer properties. The existing insurance product can be taken from its own practice, the practice of competitors or foreign practice, as well as the practice of providing other financial services.

At the present stage of domestic insurance market development, insurers in most cases use modification of a proven insurance product by giving it new consumer properties and qualities necessary for the effective protection of the property interests of individuals and legal entities in the conditions of modernizing economy.

In Uzbekistan insurance market, innovative insurance products, as a rule, are introduced by leaders and then copied by other market participants. Copying domestic best practices is economically justified – the insurer does not spend money on developing innovations, but simply copies someone else’s positive experience. However, direct copying of advanced innovative insurance products that have proven themselves positively in the foreign markets may not have a positive effect on Uzbekistan insurance market. And, in some cases, it may even lead to a negative result. Borrowing advanced foreign innovative products must be carried out taking into account the local insurers technological effectiveness, the mentality and paying capacity of potential clients of insurance companies.

Widespread application of innovations in the technological, economic and product spheres of insurance is achieved by insurance companies operating on a systematic and comprehensive basis. At the same time, they consider the following main factors as an innovation object: organizational structure of the company; applied technological processes, including strategic and current planning; information support for insurer’s activities; insurance management and insurance marketing. It should be noted that the main points of strategic planning for insurance organization are the definition of a business concept and the development of a mission for its activities.

The introduction of innovations in insurance, as a rule, is a long-term process requiring sometimes significant financing and has a high uncertainty degree. So, the issues of planning innovative activities by the insurer are of particular importance. The implementation of any innovative project passes through the initial (pre-investment) stage, the project implementation stage and the stage of the project completion. For each stage of investment project implementation, the goals and objectives of the stage, the necessary resources and functions of the insurer’s management for the successful implementation of this stage and the investment project as a whole are determined. It is obvious that the success of investment project as a whole depends on how well the initial stage of innovative project implementation was carried out, whether the potential demand for the innovative product was correctly determined, and how well the developed innovative product meets the expectations of insureds.

When planning each stage of the innovation process, several alternatives should be in place for timely consideration of factors changing during the innovation project implementation and ensuring the possibility of successful implementation of a specific stage and the innovation project as a whole. The choice of alternatives should be made taking into account the possibility of original plan revision in case of substantial change of the initial parameters or new or unaccounted risks emergence. The success of the innovation project implementation increases when the insurer’s employees are aware of the goals, objectives and problems arising during the innovative project implementation.

The number of Internet users is rapidly growing in Uzbekistan, creating a potential audience for this sales channel for long-term life insurance. And the implementation of measures aimed at the development of information and communication technologies in the country ensures growth in the number of users of information technologies and their training throughout the republic. In the use of Internet by insurance companies in Uzbekistan (Tsyganov & Bystrov, 2015) the following main approaches are distinguished. Most domestic insurers consider corporate websites solely as an advertising tool – a way to interest a client, attract him to sales points or link insurance agent to him. Although more modern method is to directly sell products online. The scheme is quite simple: the client, having selected the service he is interested in on the company’s website, calculates the price using the built-in web calculator and fills out the application form. The next step is payment, and the insurer delivers the completed documents to the client through an agent or courier or via the Internet. If the product is non-standard, the client sends a formalized request, and experts calculate the insurance price. The advantage for a potential policyholder is also the possibility of feedback from the insurer: you can send an e-mail with a question of interest or call, and payment of the insurance premium can be carried out by simply pressing a key without leaving the monitor. From the point of view of the insurance company, the use of this sales channel can significantly (up to 30%) reduce costs (Kuznetsov, 2005). In addition, online sales are cheaper contrary to agent sales in terms of commission, and also save time for company employees. The website contains complete information about the product reducing the possible number of customer questions. In addition, the insured performs part of the work related to the documents’ preparation in electronic form. It is impossible not to take into account the client’s desire to receive the product without unnecessary effort and minimal time investment. And a client who has a positive experience of purchasing policies via Internet automatically becomes a “recommender,” informing family, friends and acquaintances about the benefits of purchasing, attracting more and more clients.

For insurance company planning to organize sales via Internet, it is necessary to remember psychological factors: most customers, before making a decision to buy product, that is, willingness to pay, prefer direct visual contact with the seller. They want to see what the insurer is like, what kind of office and employees it has. Here brand promotion comes to the fore, and Internet insurance can be effective in companies that have a positive image (brand).

Internet allows to significantly reduce the insurer’s acquisition costs in general and for the agent fees payment in particular (up to 25%), as well as significantly expand the potential clients circle due to economically capable active network users. Due to the fact that insurance product sale using Internet occurs through direct contact between the insurer and the potential policyholder, regardless of his geographic location, provides the insurer with the opportunity to sell its insurance services throughout the republic without additional expenses. Obviously, this increases the possibilities for inclusive insurance intensive implementation and attracting new consumers, including for small insurance companies.

The enormous future potential of this customer service form is evidenced by the fact that in developed countries, more than 20% of insurance policies are currently issued via the Internet (Tsyganov & Bryzgalov, 2018). For example, at the end of 2022, Uzbekinvest Export-Import Insurance Company JSC concluded more than 12 thousand insurance contracts via the Internet, and this number was achieved in 2023 after six months of operations.

Prospects for the National Model Formation of Insurance Protection of Property Interests of Individuals and Legal Entities

The domestic insurance market development strategy, along with ensuring the macroeconomic indicators achievement, should contribute to the insurance culture development in terms of increasing the trust of individuals and legal entities – potential insureds – in professional participants of the insurance market by adapting insurance protection mechanisms to local conditions and the population mentality.

The solution to the above issues can be the implementation of a national model of insurance protection of the property interests of individuals and legal entities. Such a model should ensure effective protection of the property interests of corporate clients, private and small businesses and the population and help improve the insurance culture in the country (Insurance culture refers to the awareness of the necessity of insurance costs and the realization of such expenditures.).

Coverage of the population of the regions and private and small business entities located in the regions by various types of insurance services within the framework of the three-level model of national insurance will mobilize investment opportunities of the regions and will contribute to the development of both regional insurance markets and the insurance market of the Republic as a whole (Figure 6.1).

Figure 6.1. Model of national insurance

Source: Developed by the author on the basis of R. Azimov, 2021, Insurance in Uzbekistan: history, current state, challenges in the process of development, insurance of foreign economic activity, p. 168

As a rule, the risks of corporate clients cannot be placed within one country and are reinsured abroad; therefore, insurance conditions must comply with international rules and regulations of classical commercial insurance. Thus, the national model of insurance protection of the property interests of corporate clients should contain various options for classical commercial insurance.

Imputed and compulsory types of risk insurance for private and small businesses and the wealthy part of the population can be implemented within the framework of modernized classical insurance (with return of the paid insurance premium part), inclusive insurance and commercial mutual insurance.

The relevance of inclusive insurance for Uzbekistan is primarily justified by the scale of the poor population, which at the beginning of 2020 amounted to up to 15% of the total population (Electronic resource: https://www.gazeta.uz/ru/2020/02/27/poverty/ Date of application: 02.02.2022).

According to the Central Bank of the Republic of Uzbekistan, 38.7% of household respondents classified themselves in the group with incomes of 2-4 million Soums per month; the level of well-being of the majority of households remains relatively low, but at the same time technically equipped. On one hand, according to the State Statistics Committee of the Republic of Uzbekistan, in Uzbekistan there are 48 cars per 100 households, households are equipped with televisions, refrigerators, air conditioners and washing machines. 100% of the working population have mobile phones, the provision by personal computers is growing. On the other hand, household property is practically not insured. The situation is similar with personal insurance, this is explained by the fact that the main item of expenditure for these households are the expenses for essential goods and consumer goods.

By the end of 2022, the share of small and private businesses in the republic’s GDP reached 54.9%, in construction it amounted to 72.4%, in the total number of employees – 74.4%. More than 62% of those employed in small businesses in the country are engaged in private entrepreneurship and only about 16% are from small enterprises and micro-firms, which are the main client base of insurance companies; in this case, they mainly turn to insurers to receive compulsory civil liability insurance: motor, employers, carriers and owners of high-risk objects, as well as to buy insurance policies for imputed insurance – collateral property insurance, borrower’s liability insurance, borrower’s life insurance in favor of the bank, and etc. Thus, private and small businesses do not actually use insurance mechanisms as an element of their own risk management system but use insurance as a means to access credit resources. Low financial literacy of representatives of private and small businesses, especially managers of farms and dekhkan farms, and insufficient understanding of the essence of insurance services limits the use of insurance by private and small businesses to protect their property interests.

It should be noted that COVID-19 pandemic has had a significant negative impact on the real incomes of the population, as well as private and small businesses.

The relevance of inclusive insurance is also confirmed by Uzbekistan’s exposure to natural disasters such as mudflows, earthquakes, landslides, avalanches, floods and droughts, which have devastating consequences for the country’s economy and population. Of particular concern is the vulnerability of the rural population to natural disasters in Uzbekistan, as approximately 49.56% (2019) of the population lives in rural areas and is heavily dependent on subsistence agricultural production. Here are just some examples of the negative consequences of natural disasters:

– an earthquake occurred in 1966 in the city of Tashkent caused damage in the amount of 300 million US dollars (equivalent to 10 billion US dollars today);

– 140 billion soums of material damage was caused in Bukhara as a result of strong winds in the spring of 2020.

As noted above, Uzbekistan is also exposed to risks of a technogenic nature – as a result of a water outburst from the Sardoba reservoir, total losses and costs amounted to more than 1.5 trillion soums.

In recent years, various options for inclusive insurance products have been offered in the insurance markets of the Kyrgyz Republic, Turkey, New Zealand and Romania (Table 6.1), and the inclusive insurance option implemented in the Kyrgyz Republic is practically a reincarnation of compulsory property insurance for individuals, carried out by Gosstrakh in the Soviet years. The most successful, in our opinion, option of inclusive insurance was used in Turkey, however, none of the countries listed above managed to achieve full population coverage with inclusive insurance types.

For the widespread use in domestic practice of inclusive types of classical commercial insurance of property interests of private and small businesses and the population, it is necessary to solve the following issues: ensuring effective demand from the population due to the low living standard and increasing the insurance culture level; crucial expansion of sales channels focused on the insurance products sale for inclusive insurance – primarily the retail sales network; improving the professional level of employees of insurance companies involved in the sale of insurance products to the population; develop comprehensive programs combining new and traditional insurance products.

Table 6.1. Insurance markets and inclusive insurance main parameters

	New Zealand	Romania	Turkey	Kyrgyz Republic
Code (name of the inclusive insurance program)	EQC	PAID	DASK (TCIP)	Mandatory Insurance of Houses against Fire and Natural Disasters
Program type	Public	Private	Public-private	Public
Number/type of disasters included	5: Earthquake, natural landslip, volcanic eruption, hydrothermal activity, tsunami	3: Earthquake, flood, landslide	1: Earthquake	18: Earthquake, flood, strong wind, avalanche, hail, and so on.
Insurance form	Voluntary	Mandatory	Mandatory	Compulsory
Premium: Flat or riskbased	Flat	Flat; 2 policy types (depending on type of property	Ranges by 3 pricing factors (location and type/size of property)	Flat; different by rural/urban
Premium size	20 cents per 100 fire insurance cover; capped at $NZ 345	1 per 1000	0.44–5.50 per 1000	1.2 per 1000
Coverage size	Maximum $NZ 150,000	€10,000 or €20,000	Average coverage of about $US60,000	$US 7,200 – 14,300
Assets covered	Buildings, land	Buildings	Buildings	Buildings
Deductible	Yes	No	Yes, 2%	No
Reinsurance	Private and government	Private	Private and government	No access to reinsurance
Claims assessment	Damage assessment that considers replacement cost	Damage assessment that considers replacement cost	Damage assessment that considers replacement cost	Damage assessment estimating % of affected area
Government role	Guarantor for when funds are exhausted	Supports with legal frameworks	Provides excess of loss reinsurance; supports with favorable legal frameworks	Supports with legal frameworks

Source: World Bank Report, 2020

It should be noted that the Uzbekistan population is very poorly covered by inclusive types of insurance; the main share of insurance premiums is generated by legal entities. At the same time, in developed countries, the population plays the most important and fundamental role in shaping the total volume of insurance transactions.

This population attitude towards insurance in general and towards inclusive types of insurance in particular is explained by the lack of trust in insurance organizations, low level of insurance culture and the presence of paternalistic sentiments among its significant part which brings to the conviction that the state is obliged to ensure the protection of their property interests in any cases, as well as insufficient income levels of the population.

The determining factor among the above factors is the population’s distrust in domestic insurance companies and insurance in general.

The reluctance, and in some cases the inability of domestic insurers to systematically and massively engage in insurance of risks of individuals, especially in rural areas, due to the low profitability of these operations also does not contribute to increasing confidence in insurance organizations.

In addition, the lack of trust in insurance protection mechanisms among the population is due to the poor work quality of insurers in settling claims – insurance payments are often delayed or loss is incompletely compensated, and sometimes not compensated at all.

Increased public confidence in insurance will be facilitated by the widespread introduction of insurance mechanisms to protect the property interests of the population related to housing through non-commercial mutual insurance using the principles of financial co-participation based on a voluntary association of citizens living in the same neighborhood (mahalla).

To implement this option of insurance protection, it is proposed that voluntary quarterly contributions from residents of mahalla (in the amount of 100 thousand Soums for urban residents and 50 thousand Soums for rural residents) are to be accumulated on the balance sheet of mahalla as a separate line in the special insurance fund to protect the property interests related to housing, based on the size of the sum insured of at least one thousand (for the rural population) and at least two thousand (for the urban population) US dollars in national currency equivalent. The amount of insurance premiums and the sum insured may change upward as the incomes and interest of the residents of mahalla grow. Insurance claims payments are carried out on the basis of the decision of a collegial body of a voluntary association of citizens living in the same mahalla. At the same time, the collegial body is headed by the mahalla chairman, and the members of the body are determined by a simple vote of mahalla residents who have paid contributions to the “Sugurta-tez yordam” (“Insurance – Emergency Aid”) special mahalla insurance fund, which is exempt from tax payments. The work of the collegial body is carried out free of charge, and the management of affairs is entrusted to the accountant of the makhala committee.

The funds of the special insurance fund can only be used:

To pay insurance claim upon the occurrence of insured event;
Carrying out preventive and depressive measures.

Temporarily available funds from special insurance funds are invested in accordance with the approved provisions. Any capable resident of the mahalla who has made contributions to the special mahalla insurance fund can request and receive information about the accumulation and expenditure of funds from the special insurance fund. Spending of funds from the special insurance fund is carried out on the basis of decisions of the mahalla collegial body, headed by the mahalla chairman.

Thus, the activities of non-profit mutual insurance using the principles of financial co-participation in the form of a special mahalla insurance fund:

– are not related to making profit as the main goal of its activities, profit can only be obtained from investing temporarily free funds of the fund;

– focused on reducing acquisition and administrative costs;

– information is accessible and open to mahalla residents who paid quarterly contributions to the special mahalla insurance fund;

– is local in nature (within the mahalla), which has a positive effect on the formation of a trusting attitude towards it by the local residents, other organizations and authorities;

– involves the general public in the process of inclusive insurance;

– ensures the insurance culture growth of the population.

Thus, in the economic modernization conditions, the national model of insurance protection of property interests of individuals and legal entities should contain:

– for corporate clients – various options for classic commercial insurance and commercial mutual insurance;

– for imputed and mandatory risk insurance types for private and small businesses and the wealthy part of the population – modernized classic insurance (with the return of paid insurance premium part), inclusive insurance and takaful insurance;

– for insurance protection of property interests of the population related to housing – non-profit mutual insurance using the principles of financial co-participation on the basis of a voluntary association of citizens living in the same mahalla.

Formation of Insurance Development Strategy Based on the National Insurance Model in Uzbekistan for the Period Until 2030

The formation of effective insurance development strategy is primarily determined by the presence of effective demand, which, in turn, depends on the macroeconomic state – the state and prospects for development of: the country’s economy as a whole; industry and services; the country’s financial system in general and the insurance market in particular, as well as the state social policy.

President of Uzbekistan Sh.M. Mirziyoyev in accordance with the approved “State Program for the Implementation of the Action Strategy for Five Priority Areas of Development of the Republic of Uzbekistan in 2017 – 2021” (Decree of the President of the Republic of Uzbekistan, 2017) on August 2, 2019 approved the Decree №4412 “On Measures to Reform and Ensure Accelerated Development of the Insurance Market of the Republic of Uzbekistan” (Resolution of the President of the Republic of Uzbekistan, 2019). This resolution identified the following priorities for the domestic insurance market development for the period 2019 – 2022: further transformation of the country’s national insurance market to ensure its dynamic development; meeting the growing needs of individuals and legal entities for reliable insurance protection through the introduction of new types of insurance services and insurance products; increasing the insurance culture level in the country by increasing the confidence of insurance consumers in the activities of insurance market professional participants through the unconditional fulfillment of their obligations under existing insurance agreements.

At the same time, the main directions of reforms and accelerated development of the insurance market of the Republic of Uzbekistan were determined: “improving the insurance sector legal framework, including consistent implementation of standards and recommendations of international organizations and the best global practices in this area; institutional development of the insurance regulation system aimed at ensuring the reliability and sustainability of the insurance market through the introduction of effective regulatory mechanisms and prudential supervision; increasing the capitalization level, solvency and financial stability of insurance market professional participants, improving the quality of their assets, as well as developing the investment activities of insurers; developing and expanding the insurance market infrastructure by intensifying the activities of insurance brokers, improving the work system of insurance agents, introducing bancassurance mechanisms, as well as increasing the role of the insurance market professional participants as a whole; strengthening the protection of the rights of insurance services consumers and other subjects of insurance activities, increasing the insurance literacy of the population and their trust in insurance, ensuring openness and transparency of the insurance market; expanding the volume, range and improving the quality of insurance services provided through the introduction of new innovative and development of traditionally popular insurance products; widespread use of modern information technologies in the field of organizing and regulating insurance activities, active introduction and development of electronic types of insurance services; improving the system of training, retraining and advanced training of insurance market specialists, using modern teaching methods, stimulating research activities in the field of insurance; formation and maintenance of a positive image, as well as increasing the investment attractiveness of the national insurance market, including through its integration into international and foreign insurance markets” (Resolution of the President of the Republic of Uzbekistan, 2019).

Realization of target indicators for the insurance market accelerated development in the Republic of Uzbekistan, approved by the above resolution in 2022 compared to 2018, should have ensured increase in: insurance penetration (the share of insurance services in the country’s gross domestic product) by two times; insurance density (insurance premium per capita) by three times; the gross premiums written by more than three times; the total amount of authorized capital in the insurance market by 2.4 times; total assets of insurance organizations in the insurance market by 2.1 times; the total volume of investments of insurance organizations in the insurance market by 2.7 times; the number of insurance services types by 1.7 times; the number of territorial divisions of insurance companies in the regions of the republic by 1.2 times. It is obvious that some of the above indicators at the end of 2022 were not achieved. The main reason for this, along with a number of objective factors, in our opinion, is that the main directions listed above did not include measures to create and further develop effective demand for insurance services among individuals and legal entities.

The strategy proposed in this study was developed on the basis of the analysis of relations between the state, insureds and insurers conducted above, and to a certain extent takes into account the mentality of the people of Uzbekistan and is primarily aimed at forming and developing demand for insurance mechanisms to protect the property interests of individuals and legal entities in conditions of a modernized economy. It should be noted that the proposed strategy is indicative and not imperative; the general goal of the proposed strategy is to create conditions for the insurance mechanisms accelerated development to protect the property interests of individuals and legal entities in conditions of modernization of the republic’s economy through the implementation of a national insurance model in Uzbekistan and the formation on its basis conditions for the development of effective demand among individuals and legal entities for insurance services.

The following goals for the insurance development in the republic are considered as the key goals of the strategy: the use of insurance mechanisms to improve the level and quality of life of individuals in a modernizing economy: promoting economic development by providing affordable insurance mechanisms to manage the risks of legal entities and individuals; creating conditions for the development of insurance culture and insurance in general. The implementation of the proposed strategy is based on the following principles: priority of the interests of individuals and legal entities when using insurance mechanisms to manage their risks; development and realization of measures to develop insurance mechanisms for protecting the property interests of individuals and legal entities in the conditions of a modernized economy; protection of the strategic interests of the domestic insurance market within its integration into regional and global insurance markets; comprehensive development of insurance mechanisms for risk management of individuals and legal entities in market conditions based on partnership and joint responsibility of the state, business and final beneficiaries; transparency and predictability of the development of insurance mechanisms for managing risks of individuals and legal entities in the conditions of a modernized economy. As part of the proposed strategy, the national insurance model includes: classical types of commercial insurance and commercial mutual insurance; modernized types of commercial insurance (inclusive insurance, insurance with participation in the insurer’s profit); non-profit mutual insurance using the principles of financial co-participation on the basis of a voluntary association of citizens living in the same mahalla.

The main tools for realizing the proposed strategy can be: the development of laws, by-laws, normative and methodological documentation relating to the implementation and operation of the national insurance model, first of all, the project of the Law of the Republic of Uzbekistan “On Mutual Insurance”, normative and methodological documentation on the organization of non-commercial mutual insurance using the principles of financial co-participation on the basis of a voluntary association of citizens living in the same mahalla; application of soft and indirect regulatory measures to the organization of non-profit mutual insurance using the principles of financial co-participation on the basis of a voluntary association of citizens living in the same mahalla; strengthening supervision and applying supervisory measures to classic commercial types of insurance and mutual insurance will ensure the legitimacy and protection of the interests of both insurance market professional participants and final beneficiaries; creating infrastructure and ensuring equal access to it when organizing non-profit mutual insurance using the principles of financial co-participation on the basis of a voluntary association of citizens living in the same mahalla; ensuring information transparency and interaction of the ASB in the implementation of this strategy with professional participants of insurance activities and final beneficiaries reduces uncertainty, influences the behavior and expectations of both insurance activities professional participants and individuals and legal entities.

Important instruments for the insurance development also include increasing the level of financial and insurance education and insurance literacy, which is carried out in order to form the informed choice of insurance mechanisms by individuals and legal entities to protect their property interests.

The insurance development strategy based on the national insurance model in Uzbekistan for the period until 2030, in principle, can be the basis for strategic planning for the long term. If necessary, depending on the planning period, individual aspects of the Strategy can be revised and clarified to ensure the prompt and effective implementation of the goals set in it and the solution of tasks. The instrument for implementing the proposed strategy can be Decrees of the President of the Republic of Uzbekistan, Resolutions of the Cabinet of Ministers of the Republic of Uzbekistan, medium-term documents and road maps of the Ministry of Economy and Finance of the Republic of Uzbekistan, as well as local municipalities, addressing the issues of insurance mechanisms development for protecting the property interests of individuals and legal entities in a modernized economy and containing specific activities indicating the deadlines and names of the parties involved in their implementation. To ensure the strategy consistency with other documents affecting the domestic insurance market development, assessing the progress of the strategy, as well as preparing proposals for updating the strategy, it is advisable for the Cabinet of Ministers of the Republic of Uzbekistan to form working group with participation of interested parties valid for the strategy duration. Members of the working group can be representatives of ministries and departments, the Central Bank and the State Administration, whose competence includes issues of insurance market development, as well as representatives of the insurance business and the scientific community. The working group must analyze the need to update the strategy at least once a year and submit following report to the Cabinet of Ministers of the Republic of Uzbekistan. Based on this report, a decision can be made to make changes and additions to the strategy. Separately, it should be noted that the strategy realization requires the presence of qualified specialists capable of working effectively within the framework of the national insurance model. To do this, it is necessary to create insurance training centers between insurance companies for the training and retraining of insurance specialists.

Conclusions on the Sixth Chapter

Goals of insurance development in Uzbekistan, taking into account the interests of the modernizing economy: maintaining macroeconomic stability in the country by protecting the property interests of the state and business when addressing issues of economic modernization through the use of insurance mechanisms; accelerating the process of transition to a competitive market economy by creating comfortable business conditions through effective risk management for individuals and legal entities; strengthening state regulation of insurance activities in accordance with the standards of the International Organization of Insurance Supervisors, developing mechanisms for self-regulation of insurance activities, strengthening the role of non-governmental non-profit associations and unions of insurance activities professional participants; reducing the risk of social tension in society by ensuring access for the wider population to quality healthcare and education through the use of insurance mechanisms; development of regional insurance by improving the insurance culture of the regional population, as well as owners of private and small businesses located locally through the implementation of a three-tier national insurance model; increasing investment potential by providing access to long-term money through the development of cumulative long-term types of insurance meeting the traditions and mentality of our people, as well as the effective use of temporarily free funds collected in special mahalla funds during the implementation of the national model of non-profit mutual insurance based on the principle of financial co-participation; ensuring the protection of property interests of individuals and legal entities from environmental risks and risks of natural and man-made disasters.
In conditions of economic modernization, the national model of insurance protection of property interests of individuals and legal entities should contain: for corporate clients – various options for classic commercial insurance; for imputed and compulsory types of risk insurance for private and small businesses and the wealthy part of the population – modernized classic insurance (with the return of the paid insurance premium part), inclusive insurance and commercial mutual insurance; for insurance protection of property interests of the population related to the loss or damage to real estate – non-profit mutual insurance using the principles of financial co-participation on the basis of a voluntary association of citizens living in the same mahalla.

The main tools for realizing the insurance development based on the national insurance model in Uzbekistan as an element of the risk management system for individuals and legal entities for the period until 2030 can be: the development of laws, by-laws, normative and methodological documentation related to the implementation and operation of the national insurance model, first of all, the project of the Act of the Republic of Uzbekistan “On Mutual Insurance”, normative and methodological documentation on the organization of non-commercial mutual insurance using the principles of financial co-participation on the basis of a voluntary association of citizens living in the same mahalla; application of soft and indirect regulatory measures to the organization of non-profit mutual insurance using the principles of financial co-participation on the basis of a voluntary association of citizens living in the same mahalla; strengthening supervision and applying supervisory measures to classic commercial types of insurance and mutual insurance will ensure the legitimacy and protection of the interests of both insurance market professional participants and final beneficiaries; creating infrastructure and ensuring equal access to it when organizing non-profit mutual insurance using the principles of financial co-participation on the basis of a voluntary association of citizens living in the same mahalla; ensuring information transparency and interaction of the ASB in the implementation of this strategy with professional participants of insurance activities and final beneficiaries reduces uncertainty, influences the behavior and expectations of both insurance activities professional participants and individuals and legal entities.

Comments

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Digital Euro: Prospects for the Future and the Threat of Deglobalization

Chapter And Authors Information

Athanasios Davalas

Yannis Charalabidis

Digital Euro: Prospects for the Future and the Threat of Deglobalization

From the Edited Volume

Deglobalization – The Future of Growth in the International Economy?

DOI: 10.51432/978-1-914266-10-2-6

Edited By:

Dr. John Walsh

Content

Introduction

The exploitation and availability of new technology is an essential source for various startups, especially on how they can generate new ideas for their business. Therefore, an already existing technology to help them is led by IoT, which is meant to create a difference in how they approach business and run it all together. In addition, the combination of the Al and the various technologies like blockchain will yield results in business operations. However, the interaction of these forms of technologies is meant to restructure the preexisting environment economically, which in the long run is meant to create new business opportunities for the startup business. Such success will be achieved only through the enhanced innovations pushed by citizens’ increased liking of digital payments. Furthermore, banks like the European Central Bank and central bank are also meant to participate in the digital currency, like the establishment of the digital Euro. Due to this, the paper looks into the various natures and future of the Digital Euro in addition to considering the implications under unpredictable circumstances such as the threat of deglobalization.

First, the digital Euro is intended to provide a technological infrastructure that allows the euro area to conduct digital transactions with the eventual goal of making cross-border electronic payments a reality. The underlying idea is that digital currencies such as Bitcoin could eventually replace national currencies. However, digital currencies require trust and familiarity to be adopted by the general public. As such, lacking trust in national governments and central banks may lead people to seek alternatives such as digital currency. This means that the Digital Euro would have to meet the demands of both the public and private sectors. Moreover, it would have to remain resilient in threats like deglobalization. Therefore, business leaders must be prepared for unexpected scenarios, and plans must be prepared accordingly.

The second assumption is that deglobalization threatens national economies. Technological developments are increasingly affecting trade flows across borders. Technology-enabled trade is expected to continue growing due to increased demand for foreign goods and the widening gap between supply and demand domestically. With this in mind, measures must be taken to ensure that national economies can still compete on an even footing with countries worldwide. This includes ensuring that local industries remain competitive through innovation, automation, and tax compliance (both on imports and exports). Furthermore, government policies towards deglobalization should be considered carefully since they can encourage or hinder growth at home.

However, though the replacement of the other forms of payments will not take place, the digital currencies will be able to complement them, making it essential for various startup businesses to appreciate the newly generated concepts and apply them in building new and well refurbished business models. Considerably, the Digital Euro or other applied currencies digitally are known to be associated with Blockchain technology combined with advanced technology. The applications of IoT, Al, are meant to bring a new dimension into the use of business models so that new starting businesses can perform. Therefore, the paper needs to present a rational method that is meant to create an easy way of establishing a ‘programmable Digital Euro’ that will be incorporated into the existing processes of banks to give ideas to startups.

Reasons for Issuing a Digital Euro

The key drivers when using the ECB are the existing digital transformation and the sovereignty and independence of the European economy, which operates towards establishing the Euro to be more stable and available to consumers and businesses. Therefore, through the use of the ECB, it looks at establishing a digital currency that can replicate other existing forms of the Euro and the developed infrastructure. In addition, there is a need to allow the development of new business opportunities which will combine the various cases for startups to be operational. Hence, if the digital currency is incorporated with the payment and other business operations, it will automatically breed results in terms of profits. The existence of competition, especially from the digital currencies of other dominant countries like China, is needed to promote the sovereignty of the Euro, which will encourage the development of innovative ideas. This will contribute to developing essential and innovative ideas in the active European industrial activities (Bitcom, 2020).

The reduction in the application and exploitation of money explains increased dependence on the other forms of payments in the euro area. Hence, the evolution of the digital Euro would be able to serve more roles like the complementary form of payment, making it able to match the required features of money. The main ones include facilitating offline payments and being efficiently used by vulnerable groups. Furthermore, the payment should be able to be free of charge and also assure there is privacy when used (BitCom, 2020). In addition, the currency has to have a minimum circulation cost which is going to guarantee the privacy of the data and the users and also be able to allow for fast and prompt payments.

Introducing the digital Euro will establish a different option mainly for exploiting the already euro-dominated central bank currency, electronic money, and payments from commercial banks. In addition, the digital Euro will be able to establish a reliably different form of exchange that will be able to create a storage value for the existing euro area. Furthermore, the Euro will inhibit other private organizations that the European financial institutions do not regulate from establishing payment solutions for the monetary euro area, which might be challenging and risky for foreign exchange. The giving out of digital Euro will be able to promote the required autonomy of European markets, hence enhancing independent financial decisions.

The existence of internet threats like cyber-attacks, pandemics, natural calamities, and other events that are different, especially in threatening financial flow, encourage the issuing of the digital Euro. In many circumstances, the challenges could reduce the utility of having online banking and even the effective withdrawal of cash from the teller machines. Due to this, it might affect the facilitation of retail or wholesale payments, thus reducing citizens’ trust in the existing monetary systems. Therefore, there is a need to establish the view and understanding that the digital Euro should be used with cash which will be able to create a different view on the dependable payment methods in case there is a failure in utility. This implies that the digital Euro can be discharged through cyber solid security features unique from other payment methods. The other role of the digital Euro is that it can create an environment for the promotion of the international relevance put on the Euro by stimulating the exploitation and application of the Euro through overseas investments (ECB, 2017). Hence this necessitates that the digital Euro be availed more passed the euro dominated geographical area so as it can match the goals of the already existing and operating Euro dominated system.

Digital Euro Functional Design Possibilities

Some characteristics remain essential to the digital Euro, and they include access. In this case scenario, the users could be able to access the Euro differently, or they can be able to do it indirectly through supervised intermediaries. The privacy should be certain by enhancing the functionality, where the structure operators can allow given transactions to be facilitated without revealing the hidden characteristics of the parties involved. Having some transactions would be able to require the identities of the clients involved to be put on paper so that no law is broken in the process. The digital Euro also needs to be regulated so that it should not be used as a form of investment which will help avoid turning commercial bank money into digital Euro. Preventing specific suspicious individuals’ access to their services would mean that the use would be limited to particular residents, especially in financing terrorist activities. In addition, having restricted access implies that it can still be used in international standards, especially by members not from the European Union or generally the members of such countries visiting.

Exploiting the digital Euro will require the transfer of mechanisms that would be generally account-based or openly beard during transactions. The account-based system understands that it can work by involving a third party to have records of the user’s holdings and then assure the financier only if the funds transfer has been validated. However, the bearer instrument is understood to let the participants who are serious players, that is, the payer and payee, be able to confirm various transactions. Understanding the device used in transacting, then the digital Euro is used as a web-based service that works the same as smartcards. Furthermore, a digital euro can be transacted through the utility of web-based service providers, ensuring that they services are synchronized. The digital Euro is also supposed to be availed for offline use to keep off from leaking transacted details that the payer makes to the payee from being shared with third parties. In addition, the digital Euro needs to give space for the monetary policies’ remuneration which will enhance financial stability and develop the established structural abilities that are relative and accommodative in use. The general concern is to enable the ecosystem to become an uncontrolled investment place.

The Technical and Organizational Approaches to Digital Euro Services

The look at the various designs for the use and execution in use of the digital Euro, then there is a need to appreciate the abilities and levels of the various back-end infrastructures used and the established solutions for specific end users. Therefore, the giving out of a digital euro has to be primarily regulated by the established euro operating system. In addition, the parties supervised mainly through the central bank should be notified primarily in knowing the identity of users and the transactions tied to the infrastructure ran predominantly by the central bank. Regarding security, only two methods can be deliberated on for the stable bank end infrastructure: the centralized and decentralized system. The understanding of the centralized system is that it functions by guaranteeing that the transactions involving the digital Euro are noted in the designated euro register. On the other hand, the decentralized approach, automatically the euro system, has the authority to establish rules to settle the incurred digital euro transactions. The understanding of the end user access solution is that there is the back-end infrastructure; hence this might bring a variance in the models used for the transaction. In many cases, the euro system will require a different view, especially in ensuring that the end user accesses are utilized so that services are available globally.

Disruptive Technologies of IoT, Al, and Blockchain for Digital Euro
Internet of Things

The understanding of the internet of things is that it is the combination of an excess of 20 billion devices established to collect, sense and then transfer data through the use of the internet. The consideration of such data may include the list of contacts, location, health and fitness data, and browsing patterns meant to create an understood communication protocol. In many circumstances, the devices can receive data from the environment, which is meant to inform people, especially in making decisions.

Generally, the internet of things is an invention that has penetrated the day to day activities and the living of households and even industries. Hence, it is understood to be the established internet connections among various everyday entities that are intelligent to connect to the available network or wireless device. This is enabled by identifying, gathering, and transferring various data instructions through the internet. In addition, it looks to escalate the utility and relevance of the internet with the established network, which enhances devices to communicate with people. However, the rapid developments associated with technology openly offer essential opportunities for various applications that work towards improving the quality of life and also enhance on effective services exchanges (Jayavardhana et al., 2013)

Over the past ten years, there has been the penetration of the IoT, especially in running the daily activities attributed to the wireless communication apparatus and systems like the 5G and RFID that have exploited technology for surveilling and control. However, many manufacturers and service providers are mainly investing in the future goals of IoTs. Implementing different IoTs mainly adopt various communication abilities and technological designs that have a particular ability to deliver. The best example includes the medical equipment that enhances patient monitoring and the portable sensors that enable life to run smoothly.

Understanding the term ‘Internet of Things” is meant to create a definition of the future reality that will enhance the understanding of the role of sensory abilities and are connected to the existing global networks. The main reason for such technological abilities is to cover the physical and digital space gap. Hence, the representation of the IoT system is about collecting intelligent data and devices that aim at accomplishing a certain goal that can enhance understanding of the environment (Lee and Lee, 2015).

Al and Machine Learning

Al is considered radical in technology use and exploitation because it supports the required innovative applications like product recommendations, robotics, navigation systems, and autonomous vehicle systems (Deloitte, 2020). Machine learning is among the important technologies that constitute Al. Machine learning systems are used through clustering, where information is made easy to understand and compiled by dividing it into unsupervised and supervised data (Athey, 2018). Furthermore, applying a distinct technique, especially in understanding machine learning, varies and includes rule learning, neural networks, concept learning, and support vector machines. However, in analyzing of supervised learning, the system is always referenced so that there is the exploitation of data and also able to create various patterns that will be able to come up from the existing groups in the data. In many circumstances, the analysis is used in the analysis and also in the clustering problems (P. Dangeti, 2017).

The relevant view of data is that when it is being grouped, it automatically needs to be separated into clusters where, it should stay separated in a unique form that the components must have various resemblances or belong to a particular group. However, the data difference is openly measured through given metrics and criteria meant to create relevance, especially in data understanding. The view of the grouping algorithms is that they belong to an established category of hierarchical algorithms, partition-based and probabilistic algorithms. In addition, there is the application of the strengthening techniques of learning, that are broadly used in the solving challenges, aligning with the system’s goal, which aims to find a given sequence of actions to a distinct final state.

Blockchain

A Blockchain is a sequence of various blocks linked to each other, establishing a sequence through the last block connecting to the previous one in a sequence. Through the establishment, the distributed ledger uses cryptographic techniques that add the timestamps to the data kept in the set and dispersed systems. Through the establishment, it creates a shield from fraudulent activities that might control the system because there is a secured blockchain by various knots (Wander, 2020).

The blockchain comprises of a header and a body. Different parts have vital roles where the body encompasses the various connections of the block. On the other hand, the block header comprises the established worth that directs to the block header. Therefore, including the previous block’s hash value to a new one brings out a chain. The header encompasses of the stamp of its development, which is always a randomly given number, and the value root of the breakdown of the single transactions in the body of the block. A nonce, a random number, is a number given arbitrary that is only used once. However, every block has an information group that when a node creates a block, it will be able to add the block to an already established blockchain. On the other hand, the other nodes are always in place to authenticate each block before they are added to the chain. Hence, the algorithm is applied to manage the authentication and agreement across various entities that may be unique for the application and use of the blockchain.

Blockchain technology gives various opportunities, but the key understood technological benefit is that it can give solutions and mediate transactions of a known and trusted third party and among individuals. In the modern world, the people like the name of a company through it being certified by individuals hence creating relevance. Furthermore, the blockchain tends to offer a diverse or alternative, and trusted way of transferring data through a specific entity. It can be said that blockchain is being able to share a particular book that can provide consensus ways accompanied by a certain degree of anonymity to the user. In addition, blockchain is known to include smart contracts, which can allow transactions concerning various types of verification that can take place in an open system. Therefore, what is achieved is that the financial exchanges transactions are always not changed, and it is challenging to alter a specific records related to a particular transactions (Tavares, 2018).

Benefits of Technology Include (Geranio, 2017)

Reliability: the use of blockchain is through the distributed network, where it removes the urge for a central point of operation and negotiation that is mainly an important point of correcting errors and attacks which might affect the whole operating system.

The avoidance of mediation: the analysis of the parties involved then brings along a specific dominance over the data being distributed, and the various units can interchange their programs without the urge for discussion, especially from a third parties.

Quality data: the data found in the blockchain is complete, unaltered, and consistent, so there is an easy way of retrieving it to serve various functions.

Integrity: the view of transactions is supposed to be protocol based so that they can be analyzed and availed anytime to any party involved so that it can develop transparency in use and exposure on a general scale.

However, though there are benefits, blockchain has various challenges that they face, which bring a different view of efficiency in attaining the required results. The transaction speed, the information limit given on each block, and what they contain are essential in the verification procedures. To advance security, it automatically means that there is need to have a unique view on the trading algorithm used so that there is a functional view of the type of results that need to be achieved. To maintain the information confidentiality, it makes it reasonably well to create further research that will be put in place so that the data is encrypted. The carrying of further research is meant to create a relevant view on the encryption protocol that will create a secure view that will make the information not exposed (Tavares, 2018).

The replacement of this trading system with new technology, then it becomes necessary to have a stable approach that will avoid the system interconnection issues that will change the mode of operation, the culture, and the legislation that will be put in place to create a different view on the type of legislations that are going to enhance the technological operations. However, the parties involved in the development should be able to organize and have a strategy to develop and use the set technology correctly. In addition, the change in how organizations operate is meant to solely hinge on on the flexibility and the strength of the existing blockchain applications. The view of people, especially on how technology operates, is different, especially on a functional basis, mainly relating to the revolution and the potential abilities of the blockchain. It should be understood that blockchain promises to have solutions for the problems that the trusted entities face during transactions; there is a need to resolve the challenges through legal means in case of a dispute (Fabiano, 2017).

Programmable Digital Euro-Benefits for Startups

Looking at the European retail central bank-backed digital currency (Retail CBDC) as a “programmable Digital Euro” is meant to bring new opportunities that will be important to businesses and users. The looking at the various European startups then, most of them may have access to much creativity faster, like the making of cross-border payments, which bring along results as expected. In many circumstances, these startups are protected by European legislation against digital economy sovereignty. The look at the Euro’s CBDC encourages that it might also drive the practical re-emergence of the established banking transactions hence bringing faster settlement of exchange rates. In addition, banks operating processes will become more efficient to provide the required value addition to the customers and businesses.

The analysis of the cross-border payments and the general trade financing will turn into cheaper and faster for the customers. When stretched, the transaction fees levied on the cross-border payments will reach almost 6.9 % of the total transaction value and might take a minimum of nine days to clear (World Bank, 2018). A look at the European central bank’s statistics for 2019 about non-cash payments explains that almost 44 billion transactions were processed through the retail payment systems in the euro area.

The digitization of the machine economy and the general invasion of the IoTs to the developed logistics and the various payment systems broadly contribute to the appreciation of the unifying logistics and the streamlining of the supply chain into one system. Therefore, startups will be required to create entrance to the computerized supply chain systems, which guide the elasticity of having an adaptive logistic network. Exploiting the digital Euro-empowered blockchain will make available a unique safety feature that will enhance the storage, delivery, and payment of startups only if they consider using Al technology. In many circumstances, there will be an investment in the various economic sectors like healthcare, transportation, and manufacturing. The use of IoT machines will create different access to the already established blockchain-protected account so that they can be able to facilitate their payments.

The startups will profit from having more inventions solely in the monetary sector, which will further explain the Digital Euro. The facilitation of the payment flows, especially for the clients and the suppliers, generally creates a different way of payment that will be in place, which might include dividends, coupons, and repos. In addition, there should be a need to consider the safety or the foreign exchange trading that will be established due to the urge to execute a certain blockchain-based digital transfer. Looking at both hardware and software explanations to the digital Euro, they could allow the innovative modes of payments like mobile except for the e-banking services available (BitCom, 2020). In addition, the startups in the financial industry need to promote the services to be supported by the already existing legislative framework that holds the digital euro-related payment systems.

The Smart Contracts

The utility of blockchain is that it can facilitate the automation of the processes involving many organizations from industrial views. Hence, it is relevant towards understanding and defining the established concept of smart contracts for better use. Various functional computer programs should be installed to enhance the execution of agreements between two parties that might occur under certain conditions. Therefore, when they occur, then the smart contract will be able to act accordingly about a certain clause that is relevant and accommodative between them. Through this, the software program will automatically be able to control the developed digital and physical objects legally.

The understanding of the term smart contract is anchored on the analysis of information that is solely dependent on the various exterior services that can utilize information from the world and then be able to store it safely in the blockchain. The service is broadly referred to as the ledgers. A good example is that a ledger can inspect files to determine the arrival time, enhancing the documenting of the arrival data that is put down in the blockchain. Due to this, the smart contract can make active programs that solely depend on the command being issued.

The type of ledger depends on the kind and quality of data collected, especially from the contact with the exterior world. In addition, the look at the availability of the software programs and the strength of the outgoing and incoming messages makes it easy to develop a critical working ledger. The example of the information to be collected includes the products’ temperature, the spare parts market value, and even the location of the trucks that have been used in information collection. It should be appreciated that the data comes from research on the websites, which is then collected on the ledger software.

Using the ledger material is meant to extract information that will then be reflected in the composition of the physical world. A better example is the look at RFID sensors and how they are easily used, creating relevance in data application and utility. However, the hardware ledger faces a challenge, especially in reporting the input values without creating a compromising data security environment. It should be noted that the incoming ledger can record and also introduce date from the outside world, making it reliably easy to create an expansive usage view. On the other hand, the outgoing information ledger can allow the broader smart contracts to send data to the outside world.

Sharing Economy

The coming up with new business models is related to the open sharing of the economic model that has extended to the sharing of self-driven cars. The explanation of the use of self-driven cars or autonomous vehicles then the relative view of startups is that they should openly consider them as a varying way of providing the required services. An example of a sharing economy is when an owner of a self-driving car can offer his car as a taxi in exchange for digital currency. To facilitate this, a third party is not supposed to be automatically involved in the use of blockchain to make the transaction successful.

The Health Care Applications

Understanding the operation of the healthcare and medical service applications and how they can give direction towards the exploitation of the specialized IoT equipment comes down to the measures in place meant to create and make life more meaningful. The data can be about oxygen or the general ability of the blood pressure levels. Therefore, the transmission can be through the view of the remote medical Centre, which is meant to create a different consultancy that comes along after monitoring the actual data. Through this, the doctors are always helped to create time to participate in the personalized health service model to help patients in their medical journey. In addition, doctors are helped in the exchange of services which is meant to result in a mutual relation as required in the medical field.

Possible Effects of Deglobalization

Deglobalization occasionally occurs when trade and investment between countries significantly decline. Holding foreign financial assets that result from direct foreign investments is a significant boost for startups. Hence, deglobalization means that startups will have reduced access to foreign investors’ financial assets. Consequently, the growth of the startups may potentially stall because of their access to a limited amount of financial resources. From the perspective of the digital currency, a deglobalized environment would mean that the digital currency would be more volatile, thereby necessitating the fluctuation in prices (Karunaratne, 2012). The net effect on the startups is that they become unstable due to the price fluctuations where one they are manageable, the other day they are extremely low. Hence, the economic interaction between different nations is vital to startups’ survival in the digital currency world.

Deglobalization can result in financial instability in a country because of the artificial financial crises that such situations cause. The withdrawal of foreign investments resulting from deglobalization is a key factor in causing financial crises because a huge portion of the financial assets in the market are taken away. Financial instability in an economy is a definite disadvantage to many startups because they struggle to sustain themselves in an unstable market. Therefore, it is justifiable to argue that the deglobalization process has detrimental effects on the digital currency, negatively influencing the startups by slowing down their growth or, in some instances, extinguishing them from the market.

The Functioning of the Digital Currencies under Unique Circumstances

This study wishes to explore the functioning of digital currencies under unique circumstances. Such circumstances include the popping up of emergencies caused by a change in climate, which undermines air travel, or where blocs refuse each other. Restricting travel significantly affects the functioning of digital currency because it limits the number of transactions that can take place between nations. This significantly affects the business at both ends of the trading nations. Similarly, restricting air travel for climate-related reasons means that exports and imports cannot cross borders from one country to the other. Consequently, business deteriorates for most startups. Under such circumstances, the digital currency depreciates because of features like inflation caused by the failure to travel by air.

Similarly, in situations where blocs cannot trade with each other for some reason, digital currency is always on the receiving end. The lack of business between the two regional blocs means that digital currencies cannot be used. The resultant effect is that digital currencies have become more volatile. The volatility arises from the idea that digital currencies depend on projections, which means that investors and users have differing opinions, as well as government regulations (Matsuura, 2016). Blocs that have refused to trade with each other could attach their reasons for not doing so to government regulations or other issues. Hence, the more volatile the digital currencies become, the more people will not associate with them in terms of using them to trade. Therefore, digital currencies work differently in distinct environments depending on the prevailing circumstances. The concept of volatility plays a significant role in explaining the behavior of digital currencies under different circumstances.

Conclusion

In summary, the introduction and utilization of the Digital Euro are generally aimed at affecting the ability of startups in either positive or negative ways. The influence of the Digital Euro will be significantly determined through the establishment of regulations that will be put in place to support the startups and enhance their processes either within the European Union or outside. However, the launch of the digital Euro will be vital, especially in stimulating the growth and the upswing of the tech companies via having investments that will enable tech startups to reap benefits from the well-established European market. The paper’s analysis looks at the existing implications for various circumstances that affect the digital Euro, like deglobalization. The findings explain that the main effects include reduced access to financial assets for the startups and the prevailing financial instability in the countries affected by financial crises.

The paper presents functional business models that startups can use mainly based on the blockchain, IoT, and Al technologies that will surround and also guide the functioning of the various Digital Euro payments. In addition, there is a further explanation, especially on the various business concepts of the established business models and how the founders of various startups should be able to use the new technology to explore and develop new business ideas. Exploiting the Blockchain system will establish persistence, especially under various circumstances involving the deglobalization, because the dynamics involved are different.
A digital euro is a currency that does not have a physical currency in the traditional sense but exists solely as a digital form of payment. It is a crypto currency, but it is also considered a virtual currency.

The primary purpose of digital currency is to provide conveniences and security for end users while also openly allowing businesses to use the benefits of blockchain technology.
Furthermore, a digital euro could help accelerate the process of deglobalization by providing more people with access to global currencies. This could help reduce trade barriers and create more business opportunities.

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Digital Euro: Prospects for the Future and the Threat of Deglobalization

Chapter And Authors Information

Rustam Azimov

Transformation of the Insurance Business in Countries with Transition Economies (Based on Uzbekistan Experience)

Content

Formation of Insurance Development Strategy Based on the National Insurance Model in Uzbekistan for the Period Until 2030

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Digital Euro: Prospects for the Future and the Threat of Deglobalization

Chapter And Authors Information

Rustam Azimov

Transformation of the Insurance Business in Countries with Transition Economies (Based on Uzbekistan Experience)

Content

Formation of Insurance Development Strategy Based on the National Insurance Model in Uzbekistan for the Period Until 2030

Comments

Leave a comment Cancel reply

Download Chapter

Related Books

Epistemology of Obedience: The User’s Will in the Age of Algorithmic Grace

Reflections on Higher Education: Challenges and Achievements

Canvas of Words, Rhythm of Speech: The Transformative Role of Visual Art and Music in Maltese Language Learning for Adults

Transformation of the Insurance Business in Countries with Transition Economies (Based on Uzbekistan Experience)

Digital Euro: Prospects for the Future and the Threat of Deglobalization

Chapter And Authors Information

Athanasios Davalas

Yannis Charalabidis

Deglobalization – The Future of Growth in the International Economy?

Content

References

Comments

Leave a comment Cancel reply

Download Chapter

Related Books

Epistemology of Obedience: The User’s Will in the Age of Algorithmic Grace

Reflections on Higher Education: Challenges and Achievements

Canvas of Words, Rhythm of Speech: The Transformative Role of Visual Art and Music in Maltese Language Learning for Adults

Transformation of the Insurance Business in Countries with Transition Economies (Based on Uzbekistan Experience)