Could Blockchain Technology Be the Solution to Public Finance?

Public finance has always been a matter of concern.

For both involved private organizations and government, people expect transparency in the way their taxes are being utilized while government seeks answer to their public programs and measure the effectiveness of their initiatives. Though transparency to people isn’t much of a pressing concern, the outcome of the invested capital is important for governmental decision making. Lastly, the fund allocation to various government agencies and supervising the flow of fund across agencies is a challenge.

Was the allocated fund used wisely? Did it have the desired impact? These are some questions which government officials are always seeking answers for. Unfortunately, finding answers to these questions is not convenient. Why? Because government rely on several disparate ERPs to manage financial data and outcomes of invested public capital. In simpler words, return on investment needs to be measured. For some time, it has been a challenge for government to link returns with investments.

A major challenge is disparate systems across departments which lack inter-operability. For instance, one ERP may contain information related to finance while another ERP may contain results. To make decisions, information is required to be pooled together from multiple ERPs. Generally, the interconnectivity between the two ERPs fails to link capital to results. Thereby, giving no correlation between the data represented in the two ERPs.

Blockchain’s computing power coupled with its decentralization offers a solution to easily overcome the above challenge. Compared to the feats Blockchain engineers have achieved, this challenge seems miniscule. Is it so?

Other challenges in the public finance

1. Data for finance is stored on one system, while outcome results is stored on other. Therefore, clearly linking finance data to outcome is challenging.
2. Government services often involves partners—contractors, not-for-profit organizations, vendors, private organization, etc. Each of them have their own ERP. It creates an organizational challenge.
3. A government mostly has more than one ERP. So there’s a network of ERPs which makes it more complicated.

Could this problem be solved with blockchain technology?

Blockchain technology has done phenomenally well. In the past decade, several experiments across the industry have brought its advantages to the industry. Interestingly, government can benefit immensely from the characteristically powerful capabilities of blockchain. Data security and transparency are paramount of all the advantages that blockchain brings to the table. Intrinsic capabilities of blockchain—immutability, cryptography, and decentralization, offer security and other benefits.

EY’s Ops Chain Public Finance Manager (PFM), a blockchain-based tool, allows government to “track the financial integrity of the way public money is spent.” PFM supports 20 million transactions in a day on a private network and led to 90 percent gains in certain areas.

Further, as pointed out earlier, government works with a complicated array of contractors in delivering public services. Since the possibility of all vendors existing on government’s ERP is zero. The blockchain component would be helpful, acting as ERP across ERPs.

Further, blockchain technology can be useful in the way that government uses multiple ERPs for different departments. All departments store their own information and database. When required, they collaborate. In this aspect, blockchain can store information across all departments and work collaboratively whenever required.

Blockchain has the ability to work at a network level across organizations, departments, across authorities, etc., justifying its application for public finance. The potential in blockchain is immense, whether it is right for public finance or not, is yet to be confirmed.

Some governments have experimented with EY’s PFM. Though governments have not come out with result and others are still experimenting.