Allocating Digital Currencies within
Financial Accounts
Despite of the potential for digital currencies to play an important role in the future of banking and finance,
allocating these instruments within the system of financial accounts, or in regulatory or accounting standards, is
not a straightforward task.4
This is not least because there are many forms and types of digital assets, and any
classification of a specific design would ultimately need to be on a case-by-case basis. In terms of national
accounts classifications, no clear consensus has yet emerged on the particular financial instrument categories
under which digital assets should be recorded. Since a realistic allocation of these instruments within the
network of exposures is crucial for the relevance of our analysis below, we devote some space to that discussion.
3 Note that in the financial accounts, the RoW sector is not a “residual” sector; rather, it has its own sources and accounts
that are calculated independently, as in the case of any other sector, describing both domestic residence units’ assets and
liabilities abroad or foreign residence units’ assets and liabilities in the domestic economy. The EAA data are nonconsolidated, which means that they include financial links not only between the sectors but also within the sectors in the
system.
4 National accounts manuals are only revised at low frequencies (typically once every 10 years), and treating new phenomena
therefore requires interim solutions.
National accounts revisions are to the extent possible also coordinated with changes in
regulatory and accounting standards.
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At the heart of the issue is the question of whether digital assets and crypto assets can be considered financial
assets, or indeed assets at all. The statistical definition of an asset is that it is owned by an entity that should
derive economic benefits from holding it. The OECD (2018) argues that for digital/crypto instruments this
ownership condition is generally met (for example, in the form of the possession of the crypto keys). Because
digital instruments, in addition, also allow value to be carried forward between accounting periods, they can thus
be considered assets. The definition of financial assets, a necessary condition for our analysis, is more
challenging. National accounts manuals state that an asset is financial when there is a corresponding claim to
another institutional entity which entitles the holder of the asset to receive an agreed payment on an agreed
date. The requirement of an issuing entity, to whom the instrument is a liability item, excludes from the
definition of financial assets all items that are “discovered” or “mined”, such as Bitcoin.
By contrast, the
definition would encompass central-bank-issued digital assets because these establish a liability to the central
bank that can be held by non-financial counterparties in a similar way to other central bank money (cash and
banknotes) at present.5
For some types of privately initiated digital currencies with a link to an asset, such as
stablecoins, this definition of a financial asset also seems readily applicable. This seems particularly true for
stablecoins which, for the purposes of this paper, are considered fully backed by a reserve fund. This, in theory,
allows the holders to liquidate their tokens at any point in time and at no cost. By contrast, crypto assets with
no corresponding liability item are, as a rule, excluded from financial assets and are instead classified as nonfinancial assets or intangible assets.6
Our allocation proposal starts with a general classification of the high-level concepts presented above. The term
“digital asset” here incorporates central bank digital currencies (CBDCs) and all types of non-official sector crypto
assets. The term “crypto asset” is a subcategory of “digital asset” and encompasses both non-issued assets (nonfinancial assets, such as Bitcoin) and issued assets (financial assets, considered here under the generic term
“stablecoin”).
Given the focus of this paper on digital currencies as financial assets, we consider only the latter
types of crypto assets. Thus, in our paper the concept “digital currency” henceforth includes only CBDCs and
stablecoins.
The next step is to identify the financial instrument categories under which CBDCs and stablecoins could be
recorded. This choice is important, since it has implications also for the prospective accounting and regulatory
treatments of the named assets. As will be shown in Section 5 of this paper, this choice may also have broader
financial system implications, given that the networks of financial exposures look quite different for different
types of instruments. The most prominent options for instrument classification, with their respective advantages
and disadvantages, can be summarised as follows (see also IMF, 2019 and OECD 2018).
Note that options (i) and
(ii) apply to both publicly and privately issued digital currencies (CBDCs and stablecoins), whereas options (iii)
and (iv) only apply to private initiatives.
(i) Digital assets as currency. The general definition of a currency tends to overlap with the economic
definition of money: an asset that serves as a means of exchange, store of value and unit of account.
On these grounds, a CBDC clearly qualifies as a currency, given that it would either substitute for
other forms of existing currency or would be an additional form of such, backed by the power of
the sovereign. In contrast, some scholars are hesitant to allow private digital initiatives to obtain
the status of a currency. It seems relatively straightforward to justify such objections in the case of
non-financial crypto assets, but the argument may become weaker in the case of stablecoins.
5
The OECD (2018) provides a brief conceptual discussion on whether modern fiat currencies issued in fractional reserve
systems and not tied to a physical commodity, such as gold, actually pass the test of a financial asset that requires a
contractual obligation to provide a payment upon redemption of the given monetary unit. They conclude that an assessment
of the decisive criteria for recording fiat currencies as financial instruments is first required to see how the same criteria
would relate to crypto assets and digital currencies. They also argue that if digital/crypto instruments were found to meet
such criteria, these assets should be treated similar to fiat currencies but recorded in a separate subcategory to clearly
distinguish them from the latter.
6 One type of asset, namely monetary gold,
has no liability item yet is classified as a financial asset. In the future, a similar
exemption could also be considered for Bitcoin-like crypto assets with no issuing counterparty.
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Examples can be found where existing fiat currencies periodically failed to satisfy some of the
definitions of money, and equal treatment would then require that stablecoins should not be
excluded as such (see OECD, 2018). The objections towards classifying stablecoins as a currency
also have an important political dimension, whereby the proponents of the status quo tend to
associate the issuance of legal tender with the privilege of the sovereign authority (central bank
and government).
(ii) Digital assets as deposits. Deposits are non-negotiable contracts that promise to pay out in full,
either on demand (call deposits) or at an agreed maturity (time deposits).
Again, a CBDC seems to
qualify, not least because central banks already provide these types of accounts for eligible
counterparties at overnight maturity. Establishing new central bank accounts for eligible
counterparties that extend to non-financial entities (firms and retail depositors) therefore seems a
straightforward way to introduce a CBDC. For private initiatives, the complexity arises from the
fact that in the present financial accounts deposits can only be issued by a government, central
bank or other monetary financing institutions (deposit-taking institutions). To qualify for the latter,
an institution must possess a banking licence with all its obligations, including participation in
deposit guarantee schemes and being subject to prudential rules and regulations.7
One possibility
would be to introduce a new type of instrument, a “non-MFI deposit”, with potentially lighter
requirements, such as those currently applied to e-money institutions.8
(iii) Digital assets as securities. The IMF (2019) has considered the issue of “asset tokens”, which include
stablecoins, and has proposed that they be classified as debt or equity securities.9
While such an
approach could be supported by some accounting proposals, several problems may arise from
considering stablecoins as securities.
On the one hand, debt securities must demonstrate
characteristics of transferability which are not automatically met for crypto assets, even when
backed by a reserve fund. On the other hand, equity establishes a claim on the residual value of a
firm’s assets. It is not clear if the holder of a digital token necessarily has such a claim vis-à-vis the
stablecoin issuer.
(iv) Digital assets as units issued by collective investment schemes (UCITs). Another possibility for
classifying stablecoins is to use the existing investment fund rules that incorporate schemes with
stablecoin-like structures.10
For example, exchange traded funds (ETFs) hold the reference assets
at a separate custodian institution and are supported by market-making “authorised participants”.
The role of these entities is to create and redeem ETF shares according to supply and demand
conditions and to arbitrage away any differences between the value of the reference assets and the
price of the ETF shares. In the case of some prominent stablecoin proposals, a set of “authorised
resellers” would create and redeem digital tokens to equalise the value of the stock of tokens and
the value of the reserve fund.
