{ "title": "Technology Behind Crypto Can Also Improve Payments, Providing a Public Good", "publication": "IMF Blog, February 23, 2023", "sourceUrl": "https://www.imf.org/en/blogs/articles/2023/02/23/technology-behind-crypto-can-also-improve-payments-providing-a-public-good", "canonical": "https://www.imf.org/en/blogs/articles/2023/02/23/technology-behind-crypto-can-also-improve-payments-providing-a-public-good", "overlayPath": "/en/blogs/articles/2023/02/23/technology-behind-crypto-can-also-improve-payments-providing-a-public-good/index.md", "summary": "A new kind of multilateral platform could improve cross-border payments, leveraging technological innovations for public policy objectives", "sections": [ { "heading": "Summary", "content": "- Authors: Tobias Adrian, Tommaso Mancini-Griffoli.\n- Publication date: February 23, 2023.\n- Main thesis: While crypto assets have disappointed many users and warrant tighter regulation, technological innovations behind crypto—tokenization, encryption, and programmability—could be leveraged by the public sector to upgrade payment infrastructure, delivering interoperability, safety, and efficiency as a public good." }, { "heading": "New payment technologies", "content": "- Tokenization:\n - Represents property rights to an asset, such as money, on an electronic ledger—a database held by all market participants, optimized to be widely accessible, synchronized, easily updatable, and tamper-proof.\n - Anonymity of token balances and transactions is not required and undermines financial integrity.\n- Encryption:\n - Decouples compliance checks from transactions so only authorized parties access sensitive information.\n - Facilitates transparency while promoting trust.\n- Programmability:\n - Allows financial contracts to be written and automatically executed (e.g., “smart contracts”) without relying on a trusted third party." }, { "heading": "Private-sector innovation", "content": "- Innovations identified:\n - Tokenization of financial assets (stocks, bonds, other assets) that may cut trading costs, integrate markets, and enlarge access.\n - Tokenization of money, including stablecoins to the extent they comply with regulation; banks testing tokenized checking accounts.\n - Automation enabling third parties to program functionality akin to smartphone apps.\n- Risks and limitations:\n - The private sector alone will not ensure transactions are safe, efficient, and interoperable even if well regulated.\n - Likely emergence of client-only networks for trading assets and making payments.\n - Open ledgers attempting to bridge private networks may lack standardization and sufficient investment given limited profit potential.\n - Using private forms of money to settle transactions would put counterparties at risk." }, { "heading": "Central bank role", "content": "- Dual nature of CBDC emphasized:\n - As a monetary instrument: a store of value and means of payment providing safety, alleviating counterparty risks and providing liquidity in payments.\n - As infrastructure: essential to clear and settle transactions, bringing interoperability and efficiency among private networks for digital money and assets.\n- Potential functionalities of a CBDC platform:\n - Allow payments from one private money to another through the CBDC ledger or platform.\n - Escrow money on the CBDC platform and release when conditions are met (e.g., receipt of a tokenized asset).\n - Offer a basic programming language to ensure smart contracts are trusted and compatible, becoming a public good in the digital world." }, { "heading": "Cross-border payments", "content": "- A public multilateral platform could allow banks and other regulated financial institutions to trade digital representations of domestic central bank reserves across borders.\n - Participants could trade safe central bank reserves without being formally regulated by each central bank or requiring major changes to national payment systems.\n- Transactions entail more than fund movement: risk-sharing, currency exchange, liquidity management are integral.\n- Platform-enabled capabilities:\n - Simultaneous currency exchanges via single ledger and programmability so one party does not bear counterparty walkaway risk.\n - Risk-sharing contracts, auctions to support thinly traded currency markets, and automation of limits on capital flows.\n - Ensuring contracts are fully backed with escrowed money, automatically executed to avoid failed trades, and consistent with one another.\n - Pledging a contract to receive a payment tomorrow as collateral today, lowering costs of idle funds.\n- Information management via encryption:\n - Platform could check compliance with anti-money laundering requirements while allowing anonymous bidding and visibility of aggregate balances between bids and asks." }, { "heading": "Policy implications and public-good outcomes", "content": "- Technology can support key public policy objectives:\n - Interoperability among national currencies.\n - Safety via escrowed central bank reserves, settlement finality, and automatic contract execution.\n - Efficiency from low transaction costs, open participation, contract consistency, and transparency.\n- The public sector should leverage technological advances to inject interoperability, safety, and efficiency into private-sector innovation and customization.\n- Governance of a multilateral platform, especially for cross-border use, is complex and requires further exploration.\n\nSource: IMF blog post by Tobias Adrian and Tommaso Mancini-Griffoli, February 23, 2023.\n\n---\n\n\n References\n\n- A Multi-Currency Exchange and Contracting Platform\n- stablecoins\n- Central bank digital currencies\n- Federico Grinberg\n- Robert M. Townsend\n- Nicolas Zhang\n\nSource: https://www.imf.org/en/blogs/articles/2023/02/23/technology-behind-crypto-can-also-improve-payments-providing-a-public-good" } ], "bullets": [ "[Markdown version](/en/blogs/articles/2023/02/23/technology-behind-crypto-can-also-improve-payments-providing-a-public-good/index.md)", "[Structured JSON version](/en/blogs/articles/2023/02/23/technology-behind-crypto-can-also-improve-payments-providing-a-public-good/index.json)", "[Bundle manifest](/en/blogs/articles/2023/02/23/technology-behind-crypto-can-also-improve-payments-providing-a-public-good/bundle-manifest.json)", "Authors: Tobias Adrian, Tommaso Mancini-Griffoli", "Published: February 23, 2023", "Authors: Tobias Adrian, Tommaso Mancini-Griffoli.", "Publication date: February 23, 2023.", "Main thesis: While crypto assets have disappointed many users and warrant tighter regulation, technological innovations behind crypto—tokenization, encryption, and programmability—could be leveraged by the public sector to upgrade payment infrastructure, delivering interoperability, safety, and efficiency as a public good.", "Tokenization:", "Encryption:", "Programmability:", "Innovations identified:", "Risks and limitations:", "Dual nature of CBDC emphasized:", "Potential functionalities of a CBDC platform:", "A public multilateral platform could allow banks and other regulated financial institutions to trade digital representations of domestic central bank reserves across borders.", "Transactions entail more than fund movement: risk-sharing, currency exchange, liquidity management are integral.", "Platform-enabled capabilities:", "Information management via encryption:", "Technology can support key public policy objectives:", "The public sector should leverage technological advances to inject interoperability, safety, and efficiency into private-sector innovation and customization.", "Governance of a multilateral platform, especially for cross-border use, is complex and requires further exploration.", "[A Multi-Currency Exchange and Contracting Platform](https://www.imf.org/en/Publications/WP/Issues/2022/11/04/A-Multi-Currency-Exchange-and-Contracting-Platform-525445)", "[stablecoins](https://www.imf.org/en/Videos/view?vid=6311646672112)", "[Central bank digital currencies](https://www.imf.org/en/News/Articles/2022/02/09/sp020922-the-future-of-money-gearing-up-for-central-bank-digital-currency)", "[Federico Grinberg](https://www.imf.org/en/Publications/Publications-By-Author?author=Federico+Grinberg&name=Federico+Grinberg)", "[Robert M. Townsend](https://www.imf.org/en/Publications/Publications-By-Author?author=Robert+M.+Townsend&name=Robert+M.+Townsend)", "[Nicolas Zhang](https://www.imf.org/en/Publications/Publications-By-Author?author=Nicolas+Zhang&name=Nicolas+Zhang)" ], "alternates": { "markdown": "/en/blogs/articles/2023/02/23/technology-behind-crypto-can-also-improve-payments-providing-a-public-good/index.md", "json": "/en/blogs/articles/2023/02/23/technology-behind-crypto-can-also-improve-payments-providing-a-public-good/index.json", "bundleManifest": "/en/blogs/articles/2023/02/23/technology-behind-crypto-can-also-improve-payments-providing-a-public-good/bundle-manifest.json" }, "generatedAtUtc": "2026-08-26T02:44:42.813Z" }