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What are (payment) intermediaries good for?
This paper examines the question of whether computer code could actually substitute for intermediaries, as proponents of distributed ledger technology (DLT) and decentralised finance would argue. Drawing on transaction-cost economics, the paper reviews the role of intermediaries as efficient platforms for the exchange of information, goods and payments. The generic advantage of centralised coordination is compared with the narrative that DLT and decentralised finance could substitute for intermediaries due to their efficiency advantages and the promise of lower costs. The positivist question ‘cui bono?’ can be applied as a litmus test of these normative narratives in comparison with existing systems. As proposed concepts ‘without’ intermediaries introduce other intermediaries by the backdoor and no system runs without transaction costs of some sort, the paper concludes that intermediaries cannot be simply replaced.
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Udo Milkau is a digital counsellor and lecturer at the Baden-Württemberg Cooperative State University in Mosbach, Germany. His experience includes such roles as Chief Digital Officer, Transaction Banking and lecturer at Goethe University Frankfurt am Main and Frankfurt School of Finance and Management. He has a PhD from Goethe University Frankfurt, and has worked as a research scientist at such major European research centres as CERN, CEA de Saclay and GSI. He is the former Chairman of the European Association of Cooperative Banks (EACB) Digital and Data Working Group, and a member of both the EACB Payments Services Working Group and the European Central Bank’s Operation Managers Group.