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Crypto-assets and payments


Although an increasing number of countries have payment systems that provide inexpensive and near instant domestic payments, challenges in current payment services remain for addressing consumers’ emerging needs. In particular cross-border payments remain slow, expensive and opaque, especially for retail payments. In this context web-based technologies, notably blockchain (or Distributed Ledger Technologies – DLT), enable to provide new payment services be they business-to-consumer or peer-to-peer may prove more attractive.

However, these approaches have to address specific weaknesses, and many regulators consider that stable coins are at this stage, far more fragile. Their value in particular is not entirely stable and may offer no complete guarantee of a refund in the event of fraud. In addition, they often are only partially regulated and often lack of a formal governance structure.

Similarly, DLT is told to have useful applications in particular for securities and their settlement. Transforming securities into digital tokens – representations of value not recorded in accounts – could make ownership records more transparent and settlement much faster.

Here too, tokens challenge investor protection and market integrity, in addition to their management challenges. Finally, increased speed also increases the possibility of settlement failures.

However, according to the ECB Internal Crypto-Assets Task Force the ECB, crypto-assets do not currently pose an immediate threat to the financial stability of the euro area. Their combined value is small relative to the financial system, and their linkages with the financial sector are still limited.

This emerging sector nevertheless requires continuous careful monitoring. Certain specific areas should also deserve updating regulation notably to provide these digital assets with further legal predictability.

Yet, should certain players eventually step in, e.g. Central Banks issuing digital currencies or certain closed loop arrangements notably those benefit from BigTechs global reach, which favour the development of supranational stable coins, may trigger deep evolutions in the financial industry land scape and challenge EU sovereignty, unless regional (cross border) payment schemes rapidly catch-up.

Contributions to the policy debate

Extracted from the main Eurofi publications (Regulatory Updates, Views Magazines and Conference Summaries)