Digital assets in payments and transaction banking

This paper defines digital assets as those directly controlled through public-private key cryptography. It distinguishes code-based (crypto) digital assets – without intermediaries – from intermediary-based digital assets – where one intermediary or more validates transfers. The paper argues that regulatory objectives are best served by crypto-asset separation: regulated financial intermediaries can either be crypto-asset service providers or provide other regulated financial services, but they should not do both. Efficient automated processing of financial transactions can be achieved through either replacing traditional financial assets with intermediary-based digital assets or retaining existing arrangements, standardising data and processes and using application programming interfaces (APIs) to support secure automated data exchange. Similar outcomes can thus be achieved with or without digital assets. In a middle-income country context, many of the asserted benefits of retail financial services – lower cost and risk, greater speed and heightened transparency – can be better achieved with traditional financial assets. Intermediated digital assets may however offer worthwhile reductions of cost and risk in financial markets.