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International Monetary Fund. Communications Department

PHOTO: ISTOCK/ ANNA BLIOKH Digital innovation has brought major improvements to the financial system. But the system’s architecture remains essentially the same. It’s still centralized. Decentralized finance (DeFi) offers an alternative. It uses public blockchain networks to conduct transactions without having to rely on centralized service providers such as custodians, central clearinghouses, or escrow agents. Instead, these roles are assumed by so-called smart contracts. Smart contracts are instructions in the form of computer code. The code is

International Monetary Fund

traditional assets nor stablecoins. A set of alternative financial markets, products and systems that use crypto assets and software known as smart contracts that are built using distributed ledger or similar technology. Crypto assets that give holders a right to access a current or prospective product or service from the issuer or issuing network. Crypto assets that meet the definition of a security in the jurisdiction where they’re issued, marketed, transferred, exchanged, or stored. Source: Financial Stability Board. DIGITAL MONEY 1001 1010 0101 0101 1001 36

Mr. Tobias Adrian

the platform to Joe’s bank. In essence, the platform would bring each participating institution’s money onto a single ledger. Think of that as taking in different monies, putting them in a basket everyone recognizes, and seamlessly exchanging those baskets between participants and across borders. Doing so could be extremely powerful. The platform’s ledger could be leveraged to write so-called smart contracts, which are essentially programmable transactions. For instance, a payment could be made only when another is received. Or firms could automatically hedge

International Monetary Fund. Communications Department

facilitates a seamless workflow through smart contracts. Smart contracts are computer programs embedded in a distributed ledger that automatically execute actions—for example, a coupon payout—when pre-set conditions are met. Marketnode is a joint venture between the Singapore Exchange and the investment firm Temasek. MAS itself has launched an initiative—called Project Guardian—to explore digital asset applications in wholesale funding markets. Led by DBS Bank, JP Morgan, and Marketnode, the first pilot involves creating a liquidity pool, comprising a collection of

José Garrido, Ms. Yan Liu, Joseph Sommer, and Juan Sebastián Viancha
This note explores the interactions between new technologies with key areas of commercial law and potential legal changes to respond to new developments in technology and businesses. Inspired by the Bali Fintech Agenda, this note argues that country authorities need to closely examine the adequacy of their legal frameworks to accommodate the use of new technologies and implement necessary legal reform so as to reap the benefits of fintech while mitigating risks. Given the cross-border nature of new technologies, international cooperation among all relevant stakeholders is critical. The note is structured as follows: Section II describes the relations between technology, business, and law, Section III discusses the nature and functions of commercial law; Section IV provides a brief overview of developments in fintech; Section V examines the interaction between technology and commercial law; and Section VI concludes with a preliminary agenda for legal reform to accommodate the use of new technologies.