The digital transformation of money presents a paradox. While technology enables seamless cross-border value transfer, regulatory frameworks remain fragmented across jurisdictions. As central banks explore digital currencies and cryptoassets gain mainstream adoption, achieving regulatory interoperability becomes not just desirable but essential for the future of finance.
The interoperability challenge
While at the German Federal Financial Supervisory Authority (BaFin) during the creation and implementation of the Markets in Crypto-Assets Regulation, I observed a fundamental tension: financial innovation moves at crypto-internet speed while regulation evolves at institutional pace. This temporal mismatch creates regulatory arbitrage opportunities and fragments the global digital asset ecosystem.
Consider the current landscape: the European Union advances MiCA, the US has multiple competing frameworks such as the GENIUS act with additional developments at the state level, Singapore pioneers regulatory sandboxes and China deploys its digital renminbi. Each approach reflects legitimate domestic priorities, yet their divergence threatens to balkanise digital finance precisely when technological convergence demands unified standards.
The challenge intensifies with central bank digital currencies. Over 130 countries are exploring CBDCs, each designing systems reflecting national monetary sovereignty. Without interoperability standards, we risk creating digital versions of the same friction-filled correspondent banking system we seek to transcend.
Technical standards as foundation
Regulatory interoperability requires technical standardisation as its foundation. My work on ISO standards for blockchain and distributed ledger technologies reveals that common technical frameworks enable regulatory harmonisation. When systems speak the same language technically, regulatory dialogue becomes possible.
The Bank for International Settlements’ work on CBDC bridges demonstrates this principle. Projects like Tourbillon, mBridge and Dunbar show that technical interoperability between different CBDC systems is achievable. These experiments prove that sovereign digital currencies can interact while preserving monetary autonomy. That is a crucial precedent for regulatory co-operation.
Digital assets present additional complexity. Unlike CBDCs backed by central bank credibility, digital assets span a spectrum from bitcoin to securities to tokenised commodities to novel hybrid instruments. MiCA’s taxonomy provides one framework, but global consensus remains elusive. The classification challenge isn’t merely semantic, it determines which regulations apply, which authorities supervise and how cross-border activities proceed.
Pragmatic pathways forward
Three practical approaches can advance regulatory interoperability without requiring immediate global consensus.
First, mutual recognition agreements offer immediate progress. Just as traditional financial regulation uses equivalence determinations and passporting arrangements, digital asset frameworks can recognise comparable regulatory outcomes across jurisdictions. MiCA’s third-country provisions exemplify this approach, allowing non-EU entities market access through compliance with equivalent standards.
Second, regulatory pilots and sandboxes enable controlled experimentation. Cross-border pilot initiatives, where multiple regulators jointly supervise innovative projects, create foundation for interoperability.
Third, principles-based convergence provides flexibility while ensuring core protections. Rather than prescriptive rules that quickly become obsolete, principles focusing on market integrity, consumer protection and financial stability allow jurisdictions to adapt implementation to local contexts while maintaining compatible outcomes.
The role of international coordination
International bodies must evolve their coordination mechanisms for the digital age. The Financial Stability Board’s work on cryptoassets and stablecoins provides valuable high-level guidance, but implementation requires granular technical standards. Organizations like the ISO, working groups at the BIS, and initiatives like the International Telecommunication Union’s Digital Currency Global Initiative and many more bridge this gap between principle and practice.
My involvement in developing many of Germany’s and the EU’s cryptoasset regulations taught me that even well-intentioned unilateral action can create friction. The Financial Action Task Force’s travel rule for crypto transactions, while addressing legitimate concerns about illicit finance, varies significantly in implementation. These variations impose compliance costs that ultimately burden consumers and limit innovation.
Looking ahead
The window for establishing interoperable frameworks narrows as national systems solidify. Early design decisions create path dependencies difficult to reverse. The internet’s development offers both cautionary tales and inspiration: technical standards enabled global connectivity, but regulatory fragmentation still complicates digital governance decades later. Interoperability should therefore be polycentric and protocol-agnostic.
Success requires recognising that regulatory interoperability serves not just efficiency but financial inclusion. Fragmented systems perpetuate existing inequalities, excluding smaller economies and underserved populations from digital finance benefits. Interoperable frameworks, conversely, democratise access to global financial infrastructure.
The transition from analogue to digital money represents a generational opportunity to reimagine financial architecture. Whether we seize this moment to build interoperable systems or replicate existing fragmentation in digital form will shape global finance for decades. The technical capabilities exist; what’s needed now is the regulatory imagination and political will to build bridges across digital borders.
Through my work bridging academic research, regulatory practice and technical standardisation, I’ve seen that interoperability isn’t just an operational necessity. It is the foundation for an inclusive, innovative and resilient digital financial future. When combined, interoperability becomes a way to convert rules into real agency, in normal times and under stress.
Christoph Kreiterling is a Professor of Technology Assessment and Sustainability Communication at Trier University of Applied Sciences and a Research Fellow at University College London’s Centre for Blockchain Technology.
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