The future monetary system should meld new technological capabilities with a
superior representation of central bank money at its core. Rooted in trust in the
currency, the advantages of new digital technologies can thus be reaped through
interoperability and network effects. This allows new payment systems to scale and
serve the real economy. The system can thus adapt to new demands as they arise –
while ensuring the singleness of money across new and innovative activities.
Central banks are uniquely positioned to provide the core of the future
monetary system, as one of their fundamental roles is to issue central bank money
(M0), which serves as the unit of account in the economy. From the basic promise
embodied in the unit of account, all other promises in the economy follow.
The second fundamental role of the central bank, building on the first, is to
provide the means for the ultimate finality of payments by using its balance sheet.
The central bank is the trusted intermediary that debits the account of the ultimate
payer and credits the account of the ultimate payee. Once the accounts are debited
and credited in this way, the payment is final and irrevocable.
The third role of the central bank is to support the smooth functioning of the
payment system by providing sufficient liquidity for settlement. Such liquidity
provision ensures that no logjams will impede the workings of the payment system
when a payment is delayed because the sender is waiting for incoming funds.
The fourth role of the central bank is to safeguard the integrity of the payment
system through regulation, supervision and oversight. Many central banks also
have a role in supervising and regulating commercial banks and other core
participants of the payment system. These intertwined functions of the central bank
leave it well placed to provide the foundation for innovative private sector
services.24
The future monetary system builds on these roles of the central bank to give
full scope for new capabilities of central bank money and innovative services built
on top of them. New private applications will be able to run not on stablecoins, but
on superior technological representations of M0 – such as wholesale and retail
CBDCs, and through retail FPS that settle on the central bank balance sheet. Central
bank innovations can thereby support a wide range of new activities. Because
central banks are mandated to serve the public interest, they can design public
infrastructures to support the monetary system’s high-level policy goals (Table 1,
final column) from the ground up.
This vision entails a number of components that require both formal definitions
and examples. The section first introduces and explains these components. It next
gives a metaphor for what the future system will look like, both domestically and
across borders. Finally, it dives into the specifics of reforms to central bank money
at the wholesale, retail and cross-border level, before reviewing where central banks
stand in achieving this vision.