CPMI Report Finds Distributed Ledgers May Have Broad Impact on Financial System

The Committee on Payments and Market Infrastructures (CPMI), a committee under the auspices of the Bank of International Settlements, on Monday released a report on digital currencies and distributed ledger technology.

The CPMI looks at innovations in the payments domain that can have important implications for the safety and efficiency of the financial system.

The emergence of digital currencies was covered in two previous reports by the CPMI on Innovations in retail payments (2012) and Non-banks in retail payments (2014).

In the report, the committee identified two key features of digital currencies.

The first is the assets themselves (such as bitcoins). These assets can have some of the characteristics of a commodity and some of a currency. Currently, their monetary features (such as their use as a means of payment) are often more prominent, yet, these assets are not typically issued in or connected to a sovereign currency, are not a liability of any entity, are not backed by any authority and have no intrinsic value.

The second feature is the technology used. Particularly noteworthy is the use of distributed ledgers. Most financial transactions are made via a centralised infrastructure, where a trusted entity clears and settles transactions. Distributed ledgers are innovative because they allow transactions in the absence of trust between the parties and without the need for intermediaries.

The Chairman of the CPMI, Benoît Cœuré, said noted this about digital currencies:

Digital currencies and distributed ledgers are innovations that could have an impact on many areas, not only on payment systems and services. Even if today’s schemes do not endure in their present form, it is likely that other products, services and business models based on the same underlying technology will continue to emerge and develop. This might lead to changes in the way that FMIs and other market participants operate.

The CPMI concluded that, in the financial market infrastructures (FMIs) sector, wider use of distributed ledgers by new entrants or incumbents could have implications extending beyond payments, including their possible adoption by some FMIs and more broadly by other networks in the financial system.

Established on 17 May 1930, the Bank for International Settlements is the world’s oldest international financial organisation, with 60 member central banks that represent countries from around the world that together make up about 95% of world GDP.

The CPMI promotes the safety and efficiency of payment, clearing, settlement and related arrangements, thereby supporting financial stability and the wider economy. The committee monitors and analyses developments in these arrangements, both within and across jurisdictions. It also serves as a forum for central bank cooperation in related oversight, policy and operational matters, including the provision of central bank services.

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