According to a report by credit rating company Moody’s Investors Service, blockchain technologies that support cryptocurrencies may in the next five years assist issuers of financial instruments like bonds in lowering financing costs.While integrating these technologies into organizations may initially result in higher IT expenditures and “substantial investment,” it may eventually help businesses spend less, according to a report released on Wednesday.According to Moody’s, recent advancements have boosted the transformative potential of technologies like distributed ledger technology (DLT) and artificial intelligence (AI) when used in the financial markets.DLT might “gradually lower financing expenses, especially for smaller issuers,” according to the paper, while AI could potentially lower operating expenses for financial institutions by automating manual processes.
“DLT could improve financial market efficiency, modernize the payment system, and foster financial inclusion,” Vincent Gusdorf, head of DeFi and digital asset analytics, said in a press statement. “The overall economic and financial effects of technological changes, including the policy and strategic changes they prompt, are likely to be positive.”
The paper claimed that digital or tokenized bonds, which are gaining popularity in international markets, could reduce transaction costs and increase access to capital markets by enabling businesses avoid middlemen like banks and by boosting liquidity on the secondary market.Similar findings were reached by Hong Kong’s central bank after a successful $100 million tokenized bond offering earlier this year.Some businesses could be able to access new markets and take advantage of undiscovered income potential thanks to DLT.
Although the effects of employing these new technologies in finance will likely be positive, “they will vary greatly by country, region, company, and worker, with some suffering from technology-driven disruption,” the report said.
While the technology has promise, there are also dangers, including the potential to undermine governmental authority and, in the wrong hands, encourage tax evasion, money laundering, and terrorism.Moody’s stated that it intends to monitor how technological advancements in financial markets driven by AI and DLT may affect the credit risk brought on by borrowers who default on loan payments.