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Regulate Ledgers and Not Individual Crypto Providers, BIS Study Says
To make cross-border payments easier, you need to change your whole way of thinking, the authors of the BIS study found.
Updated May 11, 2023, 5:06 p.m. Published May 20, 2022, 10:59 a.m.
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Using distributed-ledger technology (DLT) to cut the cost of cross-border payments requires regulators to stop looking at individual entities like banks, and start looking at the whole decentralized network, a working paper produced for the Basel, Switzerland-based Bank for International Settlements (BIS) has found.
International standard setters are hoping to streamline current clunky and expensive systems for cross-border remittances – but to unlock the potential of blockchain-style tech, first they may need to turn away from rules that traditionally assume a single central player is in charge.
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“Enhancing cross-border payments is a multifaceted problem requiring a comprehensive approach, and DLT could be one way of addressing these inefficiencies,” as noted by the working paper, written by a team led by University of Luxembourg professor Dirk Zetzsche. However, “financial law traditionally assumes that functions are concentrated in a single entity,” the paper noted.
That hits the nub of why regulators and the crypto world are often in such conflict. Traditional financial regulations are focused on institutions such as banks, and it isn’t easy to shoehorn blockchain payments or smart contracts into that model. In practice, regulators tend to look for intermediaries on to whom obligations such as anti-money laundering checks can be piled, for example those providing crypto exchange or wallet services.
That may need to change, Zetzsche said – with rules switching to a mentality where by default you regulate, not individual nodes, but the distributed system as a whole.
Blockchain benefits
Existing cross-border payments, which often hinge on banks forming “correspondent” partnerships with overseas equivalents, allow them to charge “oligopolistic rents” that let them push up prices for the ordinary user, the paper said.
But “DLT could be used to create competition” among payment service providers by allowing people to easily select the best deal on the market, the paper said. The study also cites as a benefit easier client identification, meaning more people get into the financial system without raising money laundering risks.
Regulations should focus on the ledger when looking at issues like how the system takes decisions and manages risks, and in any other case where it would improve efficiency due to DLT’s transparency or security, the authors argue – with developers setting out the exact details in advance in a Plan of Operations that regulators have to approve.
DLT isn’t the only way to cut the cost of cross-border transfers. Another recent BIS paper examined the impact of more prosaic changes, like having central banks stay online at night and on weekends.
But international payments – making it easy to send salaries home to the developing world via remittances, for example – were a key motivation for stablecoin projects such as the now-abandoned Libra, then renamed Diem. Global regulators may be starting to hear the message.
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WH advisor Patrick Witt: Davos 2026 was ‘turning point’ for global crypto normalization
White House crypto advisor Patrick Witt said stablecoins are the “gateway drug” for global finance and that Washington is racing to deliver regulatory clarity.
What to know:
The Context: The Executive Director of the President’s Council for Advisors for Digital Assets sat down for an interview with CoinDesk where he said the recent World Economic Forum in Davos served as a stage for the Trump administration to signal its commitment to normalizing digital assets as a permanent asset class. He said:
- The administration aims to strike a balance between traditional financial incumbents and new crypto entrants through a "symbiosis" where they can coexist and compete.
- Consumers benefit from this competition, positioning the current administration as firmly on the side of technological innovation.
- The President renewed a pledge at the event to establish the United States as the undisputed "crypto capital of the world".
Latest Developments: Regulatory movement is accelerating in Washington with key committee markups scheduled for major digital asset legislation.
- The Senate Agriculture Committee is set to mark up its portion of the market structure bill on Thursday, January 29th at 10:30 AM.
- The Senate Banking Committee has postponed its markup, requiring further mediation on issues like stablecoin rewards and ethics.
- Witt expressed confidence that despite these delays, the legislation will eventually be reconciled and brought to the Senate floor.
Reading Between the Lines: Stablecoins are acting as a "gateway drug" for global business leaders who are beginning to grasp the technology's potential—and its threat.
- Witt observed a cycle where traditional players move from a lack of understanding to fear, and finally to incorporating crypto into their own product offerings.
- While some Senate Republicans worry about stablecoins causing deposit flight from community banks, Witt believes a "smooth glide path" into these future technologies is possible with patience and cooperation.
- “Consumers win when there’s choice,” he said, while also acknowledging concerns from Senate Republicans about community banks and financial stability. The administration, he suggested, sees convergence between crypto and traditional finance as inevitable but wants the transition to be smooth rather than destabilizing to all parties.
- U.S. regulators intend to lead the global regulatory conversation, even if the domestic legislative process results in imperfect "directionally accurate" rules.
What Comes Next: Once the primary market structure bill passes, the administration plans to pivot toward a major crypto tax package.
- Witt suggested there is still a window of opportunity to pass additional digital asset legislation this year before midterms dominate the congressional calendar.
- The administration is also monitoring "developing situations" regarding digital assets potentially seized in national security actions abroad, such as in Venezuela.
- Finally, Witt declined to specifically comment on speculation that Venezuelan enforcement actions may have involved seized digital assets, citing national security sensitivities and an evolving situation, but did add, “There’s a number of folks in the national security apparatus engaged,” in regards to how the Maduro regime was financed.
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