Digital Money and Finance

The European Central Bank ECB has published a paper which examines the terminology being used in the context of digital money and finance.

Highlights

🔹 Since 2008, cryptocurrencies and DeFi have driven wealth creation, tech investments, new business models (exchanges, stablecoins), and a strong enthusiast community.

🔹 And since 2016, central banks have started to work on “central bank digital currencies” (CBDC) in reaction to the continuous digitalisation of payments.

🔹 Rapid developments, technical complexity, promotional interests, and regulatory path-dependencies have led to inconsistent and misleading terminology.

🔹 Misinterpretations affect investments, regulatory clarity, and public expectations, especially among retail investors.

🔹 The paper aims to clarify terminology by analysing definitions, origins, and conceptual inconsistencies. Terms are analyzed for their current definition, etymology, quality, historical usage, and alternative terminology proposals.

🔹 The paper concludes with suggestions with regards to the emerging decentralised finance (DeFi) vocabulary:

▶Crypto-assets: The term should be reserved for unbacked, DeFi-native assets like Bitcoin. Assets merely recorded on DLT (e.g., bonds) should retain their traditional classification.

▶Alternative for Crypto-assets: "Virtual assets" or "virtual ledger entries" could replace "crypto-assets" to emphasise the lack of real-world backing.

▶Smart Contracts: The term is misleading, as such code is neither "smart" nor a "contract"—should be avoided.

▶Stablecoin: The term wrongly implies stability and bearer-like properties; e-money on DLT should retain its original name, and unstable algorithmic stablecoins reveal the term’s flaws.

▶Tokenisation: "Token" misleadingly suggests bearer instruments, while the process applies to both DLT and centralised ledgers—should be reframed as "ledger-based representation."

▶CBDC : "Retail CBDC" should be "Retail Central Bank Electronic Money (rCBEM)" whilst"Wholesale CBDC" should be "Wholesale Central Bank Money on DLT" for clarity and consistency.

Author

AiUTOMATING PEOPLE, ABN ASIA was founded by people with deep roots in academia, with work experience in the US, Holland, Hungary, Japan, South Korea, Singapore, and Vietnam. ABN Asia is where academia and technology meet opportunity. With our cutting-edge solutions and competent software development services, we're helping businesses level up and take on the global scene. Our commitment: Faster. Better. More reliable. In most cases: Cheaper as well.

Feel free to reach out to us whenever you require IT services, digital consulting, off-the-shelf software solutions, or if you'd like to send us requests for proposals (RFPs). You can contact us at contact@abnasia.org. We're ready to assist you with all your technology needs.

© ABN ASIA