Journal of Financial Market Infrastructures

Manmohan Singh

This issue of The Journal of Financial Market Infrastructures is a special issue. It presents highlights from the Central Bank of Peru’s annual conference in Lima this summer, which focused heavily on digital transformation and macroeconomic resilience.

The first paper in the issue, “Foreign exchange rationing, digital dollar access and regulatory observability: evidence from Bolivia” by Jonathan M. Fortún Vargas, is very timely and may be a harbinger for emerging markets when their foreign exchange (FX) reserves deplete in the digital era. In June 2024 Bolivia repealed a prohibition on using electronic payment instruments for virtual asset operations amid FX rationing. Fortún Vargas develops a simple framework for settlement choice in a bi-monetary economy under FX stress, combining central bank platform surveillance, supervisory reporting, bank balance sheet records and monthly market data to examine digital dollar access and regulatory observability around the change. Bolivia offers a rare case study of digital dollars under FX stress, since Tether purchases rose sharply after the 2024 authorization, when virtual asset activity entered routine supervisory reporting. Using monthly data, the author finds that lagged US-dollar-related search attention is unrelated to the parallel market premium before the authorization and is negatively associated with it after; his regression analysis can be seen as supporting evidence rather than a causal estimate. Argentina and Cambodia are adopted as boundary cases. The evidence of this benchmarking suggests that FX stress and regulatory access jointly shape digital dollar activity, and that authorization can shift activity from ad hoc platform surveillance toward recurrent supervisory reporting.

The issue’s second paper, “Composable clearing: how blockchain reconciles efficiency and safety in intermediated markets” by Nicolas Zhang, revisits the history of clearing and shows how the accounting and reserve technologies available at a given time define a safety–efficiency–prefunding frontier. We show that neither pooled mechanisms, such as automated market makers, nor purely bilateral ones, such as uncleared over-the-counter markets, can let participants trade on privately known preferences in ways that guarantee settlement. However, a composable twolayer framework – an aggregative trading and price-allocation layer, composed with a prefunded clearing layer through an atomic settlement map – can. The framework reinterprets the singleness of money: settling in central bank money is one implementation of the atomic settlement map, but tokenization allows the same finality to be obtained over high-quality collateral such as tokenized Treasury bills without central bank money necessarily being the settlement asset. While blockchain does not change the economics of clearing, blockchain-based composable designs would provide better trade-offs, expanding the attainable safety–efficiency–prefunding frontier while lowering institutional costs of ensuring “singleness” between different monies. Applications to Treasury repo and to thinly traded foreign-exchange pairs show how tokenization could reshape the future financial market infrastructure.

Finally, in our third paper, “Balance sheet decomposition of crypto, stablecoin, central bank digital currency and tokenized assets”, Wei Ye and Erick Rengifo provide a novel unified balance sheet framework for all these assets and illustrate how their risks spread across financial institutions, making a valuable contribution to the literature, which tends to examine them in isolation. Their unified, multi-entity balance sheet framework incorporates all four asset classes via a six-stage stylized process and gives background showing the evolution of each stage. The authors’ findings reveal cross-asset transmission channels – such as stablecoin runs propagating through money market funds into sovereign debt markets – that are invisible in single-asset studies. They also show that permissioned and permissionless blockchain issuances produce fundamentally different balance sheet dynamics: neutral liability substitution in the former versus unbounded off-balance-sheet leverage, analogous to pre-global financial crisis shadow banking vehicles, in the latter. Finally, they document a decentralized finance credit multiplier through which bank deposits, once tokenized and reused on-chain, can generate multiple layers of credit beyond prudential regulation.

The editorial board encourages regular submissions, and for selected papers we find opportunities for seminars to disseminate key messages. Our annual special issues have included papers presented at the 23rd Simulator Seminar, hosted by the Bank of Finland, and a special issue in collaboration with an Asian central bank is planned for 2027.

We welcome suggestions for topics that would be of particular interest to our readers as the landscape of money, collateral and financial market infrastructures continues to change rapidly in the digital era. As well as articles on stablecoins, tokenized deposits and digital money, the deputy editors and I are keen to receive submissions, especially “outside the box” ideas and analytics, underpinning nonbank payment service providers and access to central bank payment rails, distributed ledger technologies, machine learning and artificial intelligence (AI) and their impact on FMIs.