The ongoing technological advancements and evolving consumer preferences might

substantially transform the landscape described in the paragraph. The rise of crypto assets
introduces new contenders that could, as advocated by their proponents, challenge and
potentially replace both commercial bank money and central bank money as the primary
settlement assets at the core of our payment systems (Beau, 2019). Crypto assets, designed to
act as a general medium of exchange without a corresponding liability, disrupt the described
mechanism by introducing decentralized and non-governmental forms of currency (IMF, 2022).
Unlike traditional central bank-issued money, cryptocurrencies operate on blockchain
technology, a decentralised governance system where the validity of a payment depends on
achieving consensus among network participants on what counts as valid payments, and
offering alternative financial systems outside government control (Carstens, 2021). The
characterising element of a crypto asset is that, unlike the settlement assets described in the
paragraph, it is not a claim on either an issuer or a custodian. However, its users attach value to
it because they believe that its supply will remain limited, and market participants will agree on
who is entitled to sell any of the units in circulation. A reliable record-keeper typically reinforces
these beliefs by maintaining a central ledger detailing the quantity and ownership of asset units
over time. Participants in the market may attempt to sell units they don't possess or engage in
multiple sales of units they own. In the digital realm, counterfeiting becomes as effortless and
cost-effective as copying and pasting. (ECB, 2019). Cryptographic techniques replace the need
for a trusted bookkeeper in recording crypto assets on a distributed ledger. This ensures no
unexpected increase in issued crypto-assets and fosters user consensus on ownership,
eliminating the requirement for a trusted bookkeeper. The primary breakthrough introduced by
distributed ledger technology (DLT) lies in its capacity to decentralize the validation process for
registering new assets and their subsequent transfers. This decentralization involves a group of
users who may lack mutual trust and possess conflicting motivations. (ECB, 2019).
Consequently, this settlement asset facilitates low transaction costs, particularly in cross-border
transactions. Additionally, it provides enhanced privacy and security, as the risk of data
breaches is significantly lower compared to the traditional banking payment system, thanks to
the distributed ledger technology (IMF, 2023). However, among the other concerns regarding
the legal, financial, operational and compliance risks they pose, their price volatility makes it
hard to use them as a means of payment (Carstens, 2021); in addition to that they lack
convertibility at par with central bank money, which makes them an inefficient means of
payment and exposes the financial system to instability (ECB, 2022). Stablecoins, crypto assets
designed to act as a general medium of exchange with a corresponding liability not issued by a
monetary authority (IMF, 2022) offer the characteristics of cryptocurrencies and might disrupt
the payment system in the same way, while eliminating the volatility that often plagues
traditional cryptocurrencies since they are pegged to the value of a stable asset, such as the US
dollar or gold. (Nasdaq, 2023). The main risk posed by stablecoins is that they are subject to
runs. A run can be triggered if holders of fiat-referenced crypto assets no longer believe they
can redeem their tokens at par with the reference currency. Once a run is triggered, holders
rush to redeem their money, which forces the issuer to sell the reserve assets quickly and
therefore at a discount. This in turn motivates further redemptions, causing a downward price
spiral (Bank of Canada, 2022).