An air of quiet confidence suffused the Digital Monetary Institute symposium, held on 10-11 May in London. Despite the battering that cryptocurrency markets have taken over the past year, the atmosphere was positive, suggesting that the worst is over and that the crypto winter will leave us with a stronger and healthier marketplace. Although market caps are down, the sense is that they now give a more realistic reflection of value.
With the dust settling in the wake of the FTX debacle, the job that market participants and regulators have to do in cleaning up the market and ensuring a healthy digital assets ecosystem has come into sharper focus. Around the world, regulators are beginning to follow the example set by the European Union’s Markets in Crypto-Assets bill and develop their own regulatory frameworks, giving the industry some much needed clarity. During the panel on crypto regulation, however, Hester Peirce, commissioner at the US Securities and Exchange Commission, stressed the need for regulators to take a more productive approach.
There is a similarly confident feeling towards the progress countries are making on central banks and digital currencies and cross-border payments. The value of a CBDC as a tool for ensuring uniformity of digital payments and preventing possible abuses of market power is becoming clear.
The symposium brought together hundreds of experts from across the digital currency sector to exchange ideas and update on progress. It featured presentations from experts including Mu Changchun, director-general of the People’s Bank of China, Thammarak Moenjak, senior adviser for CBDC projects at the Bank of Thailand, and Andrew Abir, deputy governor of the Bank of Israel, all of whom are working on tools to ensure seamless interoperability between new networks.
The digital currency space is constantly changing and regulators are forced to react to new developments quickly, balancing the need to preserve stability with the desire to allow innovation to flourish and deliver benefits. Timothy Massad, former chairman of the Commodity Futures Trading Commission, said of decentralised finance that he is all for innovation that makes finance and governance more accessible, inclusive and effective. But as yet, it is unclear what the appropriate regulatory approach should be. ‘There needs to be some kind of regulatory attachment, but we’re not yet sure what that should look like,’ he said.
Perhaps the most rapid progress seems to be coming in the digitalisation of traditional financial instruments. The technological challenges involved in creating tokenised representations of assets are rapidly being solved and attention is turning to questions of market structure and ownership. One of the key questions that remains unsolved is what the appropriate method of settling the cash leg of securities transactions is. A poll conducted of the OMFIF audience revealed a fairly strong preference for CBDC.
This question was discussed at length during the symposium. Monica Sah, partner at Clifford Chance, Benjamin Muller, head of banking operations at Swiss National Bank, Claudine Hurman, director of infrastructures innovation and payments from Banque de France, and Amar Amlani, executive director and head of EMEA digital assets from Goldman Sachs, discussed the importance of an efficient payments instrument, how to identify the appropriate provider and what legal structures will be required to ensure it is legal tender.
Tokenising assets offers benefits of speed and transparency, but widespread adoption will be challenging. ‘We won’t see a big bang migration to distributed ledger technology – that wouldn’t be good practice,’ said Muller. ‘But a gradual evolution is costly because we will need to run today’s systems and new DLT systems in parallel.’
Lewis McLellan is Editor, Digital Monetary Institute, OMFIF.
View all of the 2023 DMI symposium sessions here.