Future monetary system
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.
Components of the future monetary system
The future monetary system builds on the tried and trusted division of roles between the
central bank – which provides the foundations of the system – and private sector entities that
conduct the customer-facing activities. On top of this traditional division of labour come new
standards such as application programming interfaces (APIs, see glossary) that greatly enhance
the interoperability of services and associated network effects. Not least are new technical
capabilities encompassing programmability, composability and tokenisation, which have so far
been associated with the crypto universe.
This vision contains components at both the wholesale and retail level, which enable a
number of new features (in bold).
At the wholesale level, central bank digital currencies (CBDCs) can offer new capabilities
and enable transactions between financial intermediaries that go beyond the traditional medium
of central bank reserves. Wholesale CBDCs that are transacted using permissioned distributed
ledger technology (DLT) offer programmability and atomic settlement, so that transactions are
executed automatically when set conditions are met. They allow a number of different functions
to be combined and executed together, thus facilitating the composability of transactions. These
new capabilities not only permit the expansion of the types of transactions, but also enable
transactions between a much wider range of financial intermediaries – not just commercial
banks. Wholesale CBDCs also work together across borders, through multi-CBDC
arrangements involving multiple central banks and currencies.
Within the new functions unlocked by wholesale CBDCs, one set of applications deserves
special mention – namely, those stemming from the tokenisation of deposits (M1), and other
forms of money that are represented on permissioned DLT networks.25 The role of intermediaries
in settling transactions was one of the major advances in the history of money, tracing back to
the role of public deposit banks in Europe in the early history of central banking.26 Bank deposits
serve as the payment medium, as the intermediary debits the account of the payer and credits the
account of the receiver. The tokenisation of deposits takes this principle and translates the
operation to DLT by creating a digital representation of deposits on the DLT platform, and
settling them in a decentralised manner. This could facilitate new forms of exchange, including
fractional ownership of securities and real assets, allowing for innovative financial services that
extend well beyond payments.
At the customer-facing, or "retail" level, the enhanced capabilities of the financial
intermediaries benefit users in the form of improved interoperability between customer-facing
platforms provided by intermediaries. Core to this interoperability are APIs, through which users
of one platform can easily communicate and send instructions to other, interlinked platforms.
This way, innovations at the retail level promote greater competition, lower costs and expanded
financial inclusion.
Concretely, retail FPS and retail CBDCs constitute another core feature of the future
monetary system. Retail FPS are systems in which the transmission of a payment message and
the availability of final funds to the payee occur in (near) real time, on or as near to 24/7 as
possible. Many are operated by the central bank. Retail CBDCs are a type of CBDC that is
directly accessible by households and businesses. Both retail CBDCs and FPS allow for instant
payments between end users, through a range of interfaces and competing private PSPs. They
hence build on the two-tiered system of the central bank and private PSPs. Retail CBDCs and
FPS share a number of further key features and can thus be seen as lying on a continuum. Both
are supported by a data architecture with digital identification and APIs that enable secure data
exchange, thus supporting greater user control over financial data. By providing an open
platform, they promote efficiency and greater competition between private sector PSPs, thus
facilitating lower costs in payment services. Through inclusive design features, both can support
financial inclusion for users that currently do not have access to digital payments.
Details of the wholesale and retail components are expanded upon below. For each of
these, an advanced representation of central bank money supports private sector services that
serve the real economy. The central bank supports the singleness of the currency, and
interoperability – the ability of participants to transact in different systems without having to
participate in each.27 This allows network effects to take hold, whereby the use of a service by
one party makes it more attractive for others.
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.
Components of the future monetary system
The future monetary system builds on the tried and trusted division of roles between the
central bank – which provides the foundations of the system – and private sector entities that
conduct the customer-facing activities. On top of this traditional division of labour come new
standards such as application programming interfaces (APIs, see glossary) that greatly enhance
the interoperability of services and associated network effects. Not least are new technical
capabilities encompassing programmability, composability and tokenisation, which have so far
been associated with the crypto universe.
This vision contains components at both the wholesale and retail level, which enable a
number of new features (in bold).
At the wholesale level, central bank digital currencies (CBDCs) can offer new capabilities
and enable transactions between financial intermediaries that go beyond the traditional medium
of central bank reserves. Wholesale CBDCs that are transacted using permissioned distributed
ledger technology (DLT) offer programmability and atomic settlement, so that transactions are
executed automatically when set conditions are met. They allow a number of different functions
to be combined and executed together, thus facilitating the composability of transactions. These
new capabilities not only permit the expansion of the types of transactions, but also enable
transactions between a much wider range of financial intermediaries – not just commercial
banks. Wholesale CBDCs also work together across borders, through multi-CBDC
arrangements involving multiple central banks and currencies.
Within the new functions unlocked by wholesale CBDCs, one set of applications deserves
special mention – namely, those stemming from the tokenisation of deposits (M1), and other
forms of money that are represented on permissioned DLT networks.25 The role of intermediaries
in settling transactions was one of the major advances in the history of money, tracing back to
the role of public deposit banks in Europe in the early history of central banking.26 Bank deposits
serve as the payment medium, as the intermediary debits the account of the payer and credits the
account of the receiver. The tokenisation of deposits takes this principle and translates the
operation to DLT by creating a digital representation of deposits on the DLT platform, and
settling them in a decentralised manner. This could facilitate new forms of exchange, including
fractional ownership of securities and real assets, allowing for innovative financial services that
extend well beyond payments.
At the customer-facing, or "retail" level, the enhanced capabilities of the financial
intermediaries benefit users in the form of improved interoperability between customer-facing
platforms provided by intermediaries. Core to this interoperability are APIs, through which users
of one platform can easily communicate and send instructions to other, interlinked platforms.
This way, innovations at the retail level promote greater competition, lower costs and expanded
financial inclusion.
Concretely, retail FPS and retail CBDCs constitute another core feature of the future
monetary system. Retail FPS are systems in which the transmission of a payment message and
the availability of final funds to the payee occur in (near) real time, on or as near to 24/7 as
possible. Many are operated by the central bank. Retail CBDCs are a type of CBDC that is
directly accessible by households and businesses. Both retail CBDCs and FPS allow for instant
payments between end users, through a range of interfaces and competing private PSPs. They
hence build on the two-tiered system of the central bank and private PSPs. Retail CBDCs and
FPS share a number of further key features and can thus be seen as lying on a continuum. Both
are supported by a data architecture with digital identification and APIs that enable secure data
exchange, thus supporting greater user control over financial data. By providing an open
platform, they promote efficiency and greater competition between private sector PSPs, thus
facilitating lower costs in payment services. Through inclusive design features, both can support
financial inclusion for users that currently do not have access to digital payments.
Details of the wholesale and retail components are expanded upon below. For each of
these, an advanced representation of central bank money supports private sector services that
serve the real economy. The central bank supports the singleness of the currency, and
interoperability – the ability of participants to transact in different systems without having to
participate in each.27 This allows network effects to take hold, whereby the use of a service by
one party makes it more attractive for others.
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.
Components of the future monetary system
The future monetary system builds on the tried and trusted division of roles between the
central bank – which provides the foundations of the system – and private sector entities that
conduct the customer-facing activities. On top of this traditional division of labour come new
standards such as application programming interfaces (APIs, see glossary) that greatly enhance
the interoperability of services and associated network effects. Not least are new technical
capabilities encompassing programmability, composability and tokenisation, which have so far
been associated with the crypto universe.
This vision contains components at both the wholesale and retail level, which enable a
number of new features (in bold).
At the wholesale level, central bank digital currencies (CBDCs) can offer new capabilities
and enable transactions between financial intermediaries that go beyond the traditional medium
of central bank reserves. Wholesale CBDCs that are transacted using permissioned distributed
ledger technology (DLT) offer programmability and atomic settlement, so that transactions are
executed automatically when set conditions are met. They allow a number of different functions
to be combined and executed together, thus facilitating the composability of transactions. These
new capabilities not only permit the expansion of the types of transactions, but also enable
transactions between a much wider range of financial intermediaries – not just commercial
banks. Wholesale CBDCs also work together across borders, through multi-CBDC
arrangements involving multiple central banks and currencies.
Within the new functions unlocked by wholesale CBDCs, one set of applications deserves
special mention – namely, those stemming from the tokenisation of deposits (M1), and other
forms of money that are represented on permissioned DLT networks.25 The role of intermediaries
in settling transactions was one of the major advances in the history of money, tracing back to
the role of public deposit banks in Europe in the early history of central banking.26 Bank deposits
serve as the payment medium, as the intermediary debits the account of the payer and credits the
account of the receiver. The tokenisation of deposits takes this principle and translates the
operation to DLT by creating a digital representation of deposits on the DLT platform, and
settling them in a decentralised manner. This could facilitate new forms of exchange, including
fractional ownership of securities and real assets, allowing for innovative financial services that
extend well beyond payments.
At the customer-facing, or "retail" level, the enhanced capabilities of the financial
intermediaries benefit users in the form of improved interoperability between customer-facing
platforms provided by intermediaries. Core to this interoperability are APIs, through which users
of one platform can easily communicate and send instructions to other, interlinked platforms.
This way, innovations at the retail level promote greater competition, lower costs and expanded
financial inclusion.
Concretely, retail FPS and retail CBDCs constitute another core feature of the future
monetary system. Retail FPS are systems in which the transmission of a payment message and
the availability of final funds to the payee occur in (near) real time, on or as near to 24/7 as
possible. Many are operated by the central bank. Retail CBDCs are a type of CBDC that is
directly accessible by households and businesses. Both retail CBDCs and FPS allow for instant
payments between end users, through a range of interfaces and competing private PSPs. They
hence build on the two-tiered system of the central bank and private PSPs. Retail CBDCs and
FPS share a number of further key features and can thus be seen as lying on a continuum. Both
are supported by a data architecture with digital identification and APIs that enable secure data
exchange, thus supporting greater user control over financial data. By providing an open
platform, they promote efficiency and greater competition between private sector PSPs, thus
facilitating lower costs in payment services. Through inclusive design features, both can support
financial inclusion for users that currently do not have access to digital payments.
Details of the wholesale and retail components are expanded upon below. For each of
these, an advanced representation of central bank money supports private sector services that
serve the real economy. The central bank supports the singleness of the currency, and
interoperability – the ability of participants to transact in different systems without having to
participate in each.27 This allows network effects to take hold, whereby the use of a service by
one party makes it more attractive for others.
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.
Components of the future monetary system
The future monetary system builds on the tried and trusted division of roles between the
central bank – which provides the foundations of the system – and private sector entities that
conduct the customer-facing activities. On top of this traditional division of labour come new
standards such as application programming interfaces (APIs, see glossary) that greatly enhance
the interoperability of services and associated network effects. Not least are new technical
capabilities encompassing programmability, composability and tokenisation, which have so far
been associated with the crypto universe.
This vision contains components at both the wholesale and retail level, which enable a
number of new features (in bold).
At the wholesale level, central bank digital currencies (CBDCs) can offer new capabilities
and enable transactions between financial intermediaries that go beyond the traditional medium
of central bank reserves. Wholesale CBDCs that are transacted using permissioned distributed
ledger technology (DLT) offer programmability and atomic settlement, so that transactions are
executed automatically when set conditions are met. They allow a number of different functions
to be combined and executed together, thus facilitating the composability of transactions. These
new capabilities not only permit the expansion of the types of transactions, but also enable
transactions between a much wider range of financial intermediaries – not just commercial
banks. Wholesale CBDCs also work together across borders, through multi-CBDC
arrangements involving multiple central banks and currencies.
Within the new functions unlocked by wholesale CBDCs, one set of applications deserves
special mention – namely, those stemming from the tokenisation of deposits (M1), and other
forms of money that are represented on permissioned DLT networks.25 The role of intermediaries
in settling transactions was one of the major advances in the history of money, tracing back to
the role of public deposit banks in Europe in the early history of central banking.26 Bank deposits
serve as the payment medium, as the intermediary debits the account of the payer and credits the
account of the receiver. The tokenisation of deposits takes this principle and translates the
operation to DLT by creating a digital representation of deposits on the DLT platform, and
settling them in a decentralised manner. This could facilitate new forms of exchange, including
fractional ownership of securities and real assets, allowing for innovative financial services that
extend well beyond payments.
At the customer-facing, or "retail" level, the enhanced capabilities of the financial
intermediaries benefit users in the form of improved interoperability between customer-facing
platforms provided by intermediaries. Core to this interoperability are APIs, through which users
of one platform can easily communicate and send instructions to other, interlinked platforms.
This way, innovations at the retail level promote greater competition, lower costs and expanded
financial inclusion.
Concretely, retail FPS and retail CBDCs constitute another core feature of the future
monetary system. Retail FPS are systems in which the transmission of a payment message and
the availability of final funds to the payee occur in (near) real time, on or as near to 24/7 as
possible. Many are operated by the central bank. Retail CBDCs are a type of CBDC that is
directly accessible by households and businesses. Both retail CBDCs and FPS allow for instant
payments between end users, through a range of interfaces and competing private PSPs. They
hence build on the two-tiered system of the central bank and private PSPs. Retail CBDCs and
FPS share a number of further key features and can thus be seen as lying on a continuum. Both
are supported by a data architecture with digital identification and APIs that enable secure data
exchange, thus supporting greater user control over financial data. By providing an open
platform, they promote efficiency and greater competition between private sector PSPs, thus
facilitating lower costs in payment services. Through inclusive design features, both can support
financial inclusion for users that currently do not have access to digital payments.
Details of the wholesale and retail components are expanded upon below. For each of
these, an advanced representation of central bank money supports private sector services that
serve the real economy. The central bank supports the singleness of the currency, and
interoperability – the ability of participants to transact in different systems without having to
participate in each.27 This allows network effects to take hold, whereby the use of a service by
one party makes it more attractive for others.
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.
Components of the future monetary system
The future monetary system builds on the tried and trusted division of roles between the
central bank – which provides the foundations of the system – and private sector entities that
conduct the customer-facing activities. On top of this traditional division of labour come new
standards such as application programming interfaces (APIs, see glossary) that greatly enhance
the interoperability of services and associated network effects. Not least are new technical
capabilities encompassing programmability, composability and tokenisation, which have so far
been associated with the crypto universe.
This vision contains components at both the wholesale and retail level, which enable a
number of new features (in bold).
At the wholesale level, central bank digital currencies (CBDCs) can offer new capabilities
and enable transactions between financial intermediaries that go beyond the traditional medium
of central bank reserves. Wholesale CBDCs that are transacted using permissioned distributed
ledger technology (DLT) offer programmability and atomic settlement, so that transactions are
executed automatically when set conditions are met. They allow a number of different functions
to be combined and executed together, thus facilitating the composability of transactions. These
new capabilities not only permit the expansion of the types of transactions, but also enable
transactions between a much wider range of financial intermediaries – not just commercial
banks. Wholesale CBDCs also work together across borders, through multi-CBDC
arrangements involving multiple central banks and currencies.
Within the new functions unlocked by wholesale CBDCs, one set of applications deserves
special mention – namely, those stemming from the tokenisation of deposits (M1), and other
forms of money that are represented on permissioned DLT networks.25 The role of intermediaries
in settling transactions was one of the major advances in the history of money, tracing back to
the role of public deposit banks in Europe in the early history of central banking.26 Bank deposits
serve as the payment medium, as the intermediary debits the account of the payer and credits the
account of the receiver. The tokenisation of deposits takes this principle and translates the
operation to DLT by creating a digital representation of deposits on the DLT platform, and
settling them in a decentralised manner. This could facilitate new forms of exchange, including
fractional ownership of securities and real assets, allowing for innovative financial services that
extend well beyond payments.
At the customer-facing, or "retail" level, the enhanced capabilities of the financial
intermediaries benefit users in the form of improved interoperability between customer-facing
platforms provided by intermediaries. Core to this interoperability are APIs, through which users
of one platform can easily communicate and send instructions to other, interlinked platforms.
This way, innovations at the retail level promote greater competition, lower costs and expanded
financial inclusion.
Concretely, retail FPS and retail CBDCs constitute another core feature of the future
monetary system. Retail FPS are systems in which the transmission of a payment message and
the availability of final funds to the payee occur in (near) real time, on or as near to 24/7 as
possible. Many are operated by the central bank. Retail CBDCs are a type of CBDC that is
directly accessible by households and businesses. Both retail CBDCs and FPS allow for instant
payments between end users, through a range of interfaces and competing private PSPs. They
hence build on the two-tiered system of the central bank and private PSPs. Retail CBDCs and
FPS share a number of further key features and can thus be seen as lying on a continuum. Both
are supported by a data architecture with digital identification and APIs that enable secure data
exchange, thus supporting greater user control over financial data. By providing an open
platform, they promote efficiency and greater competition between private sector PSPs, thus
facilitating lower costs in payment services. Through inclusive design features, both can support
financial inclusion for users that currently do not have access to digital payments.
Details of the wholesale and retail components are expanded upon below. For each of
these, an advanced representation of central bank money supports private sector services that
serve the real economy. The central bank supports the singleness of the currency, and
interoperability – the ability of participants to transact in different systems without having to
participate in each.27 This allows network effects to take hold, whereby the use of a service by
one party makes it more attractive for others.
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.
Components of the future monetary system
The future monetary system builds on the tried and trusted division of roles between the
central bank – which provides the foundations of the system – and private sector entities that
conduct the customer-facing activities. On top of this traditional division of labour come new
standards such as application programming interfaces (APIs, see glossary) that greatly enhance
the interoperability of services and associated network effects. Not least are new technical
capabilities encompassing programmability, composability and tokenisation, which have so far
been associated with the crypto universe.
This vision contains components at both the wholesale and retail level, which enable a
number of new features (in bold).
At the wholesale level, central bank digital currencies (CBDCs) can offer new capabilities
and enable transactions between financial intermediaries that go beyond the traditional medium
of central bank reserves. Wholesale CBDCs that are transacted using permissioned distributed
ledger technology (DLT) offer programmability and atomic settlement, so that transactions are
executed automatically when set conditions are met. They allow a number of different functions
to be combined and executed together, thus facilitating the composability of transactions. These
new capabilities not only permit the expansion of the types of transactions, but also enable
transactions between a much wider range of financial intermediaries – not just commercial
banks. Wholesale CBDCs also work together across borders, through multi-CBDC
arrangements involving multiple central banks and currencies.
Within the new functions unlocked by wholesale CBDCs, one set of applications deserves
special mention – namely, those stemming from the tokenisation of deposits (M1), and other
forms of money that are represented on permissioned DLT networks.25 The role of intermediaries
in settling transactions was one of the major advances in the history of money, tracing back to
the role of public deposit banks in Europe in the early history of central banking.26 Bank deposits
serve as the payment medium, as the intermediary debits the account of the payer and credits the
account of the receiver. The tokenisation of deposits takes this principle and translates the
operation to DLT by creating a digital representation of deposits on the DLT platform, and
settling them in a decentralised manner. This could facilitate new forms of exchange, including
fractional ownership of securities and real assets, allowing for innovative financial services that
extend well beyond payments.
At the customer-facing, or "retail" level, the enhanced capabilities of the financial
intermediaries benefit users in the form of improved interoperability between customer-facing
platforms provided by intermediaries. Core to this interoperability are APIs, through which users
of one platform can easily communicate and send instructions to other, interlinked platforms.
This way, innovations at the retail level promote greater competition, lower costs and expanded
financial inclusion.
Concretely, retail FPS and retail CBDCs constitute another core feature of the future
monetary system. Retail FPS are systems in which the transmission of a payment message and
the availability of final funds to the payee occur in (near) real time, on or as near to 24/7 as
possible. Many are operated by the central bank. Retail CBDCs are a type of CBDC that is
directly accessible by households and businesses. Both retail CBDCs and FPS allow for instant
payments between end users, through a range of interfaces and competing private PSPs. They
hence build on the two-tiered system of the central bank and private PSPs. Retail CBDCs and
FPS share a number of further key features and can thus be seen as lying on a continuum. Both
are supported by a data architecture with digital identification and APIs that enable secure data
exchange, thus supporting greater user control over financial data. By providing an open
platform, they promote efficiency and greater competition between private sector PSPs, thus
facilitating lower costs in payment services. Through inclusive design features, both can support
financial inclusion for users that currently do not have access to digital payments.
Details of the wholesale and retail components are expanded upon below. For each of
these, an advanced representation of central bank money supports private sector services that
serve the real economy. The central bank supports the singleness of the currency, and
interoperability – the ability of participants to transact in different systems without having to
participate in each.27 This allows network effects to take hold, whereby the use of a service by
one party makes it more attractive for others.
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.
Components of the future monetary system
The future monetary system builds on the tried and trusted division of roles between the
central bank – which provides the foundations of the system – and private sector entities that
conduct the customer-facing activities. On top of this traditional division of labour come new
standards such as application programming interfaces (APIs, see glossary) that greatly enhance
the interoperability of services and associated network effects. Not least are new technical
capabilities encompassing programmability, composability and tokenisation, which have so far
been associated with the crypto universe.
This vision contains components at both the wholesale and retail level, which enable a
number of new features (in bold).
At the wholesale level, central bank digital currencies (CBDCs) can offer new capabilities
and enable transactions between financial intermediaries that go beyond the traditional medium
of central bank reserves. Wholesale CBDCs that are transacted using permissioned distributed
ledger technology (DLT) offer programmability and atomic settlement, so that transactions are
executed automatically when set conditions are met. They allow a number of different functions
to be combined and executed together, thus facilitating the composability of transactions. These
new capabilities not only permit the expansion of the types of transactions, but also enable
transactions between a much wider range of financial intermediaries – not just commercial
banks. Wholesale CBDCs also work together across borders, through multi-CBDC
arrangements involving multiple central banks and currencies.
Within the new functions unlocked by wholesale CBDCs, one set of applications deserves
special mention – namely, those stemming from the tokenisation of deposits (M1), and other
forms of money that are represented on permissioned DLT networks.25 The role of intermediaries
in settling transactions was one of the major advances in the history of money, tracing back to
the role of public deposit banks in Europe in the early history of central banking.26 Bank deposits
serve as the payment medium, as the intermediary debits the account of the payer and credits the
account of the receiver. The tokenisation of deposits takes this principle and translates the
operation to DLT by creating a digital representation of deposits on the DLT platform, and
settling them in a decentralised manner. This could facilitate new forms of exchange, including
fractional ownership of securities and real assets, allowing for innovative financial services that
extend well beyond payments.
At the customer-facing, or "retail" level, the enhanced capabilities of the financial
intermediaries benefit users in the form of improved interoperability between customer-facing
platforms provided by intermediaries. Core to this interoperability are APIs, through which users
of one platform can easily communicate and send instructions to other, interlinked platforms.
This way, innovations at the retail level promote greater competition, lower costs and expanded
financial inclusion.
Concretely, retail FPS and retail CBDCs constitute another core feature of the future
monetary system. Retail FPS are systems in which the transmission of a payment message and
the availability of final funds to the payee occur in (near) real time, on or as near to 24/7 as
possible. Many are operated by the central bank. Retail CBDCs are a type of CBDC that is
directly accessible by households and businesses. Both retail CBDCs and FPS allow for instant
payments between end users, through a range of interfaces and competing private PSPs. They
hence build on the two-tiered system of the central bank and private PSPs. Retail CBDCs and
FPS share a number of further key features and can thus be seen as lying on a continuum. Both
are supported by a data architecture with digital identification and APIs that enable secure data
exchange, thus supporting greater user control over financial data. By providing an open
platform, they promote efficiency and greater competition between private sector PSPs, thus
facilitating lower costs in payment services. Through inclusive design features, both can support
financial inclusion for users that currently do not have access to digital payments.
Details of the wholesale and retail components are expanded upon below. For each of
these, an advanced representation of central bank money supports private sector services that
serve the real economy. The central bank supports the singleness of the currency, and
interoperability – the ability of participants to transact in different systems without having to
participate in each.27 This allows network effects to take hold, whereby the use of a service by
one party makes it more attractive for others.
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.
Components of the future monetary system
The future monetary system builds on the tried and trusted division of roles between the
central bank – which provides the foundations of the system – and private sector entities that
conduct the customer-facing activities. On top of this traditional division of labour come new
standards such as application programming interfaces (APIs, see glossary) that greatly enhance
the interoperability of services and associated network effects. Not least are new technical
capabilities encompassing programmability, composability and tokenisation, which have so far
been associated with the crypto universe.
This vision contains components at both the wholesale and retail level, which enable a
number of new features (in bold).
At the wholesale level, central bank digital currencies (CBDCs) can offer new capabilities
and enable transactions between financial intermediaries that go beyond the traditional medium
of central bank reserves. Wholesale CBDCs that are transacted using permissioned distributed
ledger technology (DLT) offer programmability and atomic settlement, so that transactions are
executed automatically when set conditions are met. They allow a number of different functions
to be combined and executed together, thus facilitating the composability of transactions. These
new capabilities not only permit the expansion of the types of transactions, but also enable
transactions between a much wider range of financial intermediaries – not just commercial
banks. Wholesale CBDCs also work together across borders, through multi-CBDC
arrangements involving multiple central banks and currencies.
Within the new functions unlocked by wholesale CBDCs, one set of applications deserves
special mention – namely, those stemming from the tokenisation of deposits (M1), and other
forms of money that are represented on permissioned DLT networks.25 The role of intermediaries
in settling transactions was one of the major advances in the history of money, tracing back to
the role of public deposit banks in Europe in the early history of central banking.26 Bank deposits
serve as the payment medium, as the intermediary debits the account of the payer and credits the
account of the receiver. The tokenisation of deposits takes this principle and translates the
operation to DLT by creating a digital representation of deposits on the DLT platform, and
settling them in a decentralised manner. This could facilitate new forms of exchange, including
fractional ownership of securities and real assets, allowing for innovative financial services that
extend well beyond payments.
At the customer-facing, or "retail" level, the enhanced capabilities of the financial
intermediaries benefit users in the form of improved interoperability between customer-facing
platforms provided by intermediaries. Core to this interoperability are APIs, through which users
of one platform can easily communicate and send instructions to other, interlinked platforms.
This way, innovations at the retail level promote greater competition, lower costs and expanded
financial inclusion.
Concretely, retail FPS and retail CBDCs constitute another core feature of the future
monetary system. Retail FPS are systems in which the transmission of a payment message and
the availability of final funds to the payee occur in (near) real time, on or as near to 24/7 as
possible. Many are operated by the central bank. Retail CBDCs are a type of CBDC that is
directly accessible by households and businesses. Both retail CBDCs and FPS allow for instant
payments between end users, through a range of interfaces and competing private PSPs. They
hence build on the two-tiered system of the central bank and private PSPs. Retail CBDCs and
FPS share a number of further key features and can thus be seen as lying on a continuum. Both
are supported by a data architecture with digital identification and APIs that enable secure data
exchange, thus supporting greater user control over financial data. By providing an open
platform, they promote efficiency and greater competition between private sector PSPs, thus
facilitating lower costs in payment services. Through inclusive design features, both can support
financial inclusion for users that currently do not have access to digital payments.
Details of the wholesale and retail components are expanded upon below. For each of
these, an advanced representation of central bank money supports private sector services that
serve the real economy. The central bank supports the singleness of the currency, and
interoperability – the ability of participants to transact in different systems without having to
participate in each.27 This allows network effects to take hold, whereby the use of a service by
one party makes it more attractive for others.
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.
Components of the future monetary system
The future monetary system builds on the tried and trusted division of roles between the
central bank – which provides the foundations of the system – and private sector entities that
conduct the customer-facing activities. On top of this traditional division of labour come new
standards such as application programming interfaces (APIs, see glossary) that greatly enhance
the interoperability of services and associated network effects. Not least are new technical
capabilities encompassing programmability, composability and tokenisation, which have so far
been associated with the crypto universe.
This vision contains components at both the wholesale and retail level, which enable a
number of new features (in bold).
At the wholesale level, central bank digital currencies (CBDCs) can offer new capabilities
and enable transactions between financial intermediaries that go beyond the traditional medium
of central bank reserves. Wholesale CBDCs that are transacted using permissioned distributed
ledger technology (DLT) offer programmability and atomic settlement, so that transactions are
executed automatically when set conditions are met. They allow a number of different functions
to be combined and executed together, thus facilitating the composability of transactions. These
new capabilities not only permit the expansion of the types of transactions, but also enable
transactions between a much wider range of financial intermediaries – not just commercial
banks. Wholesale CBDCs also work together across borders, through multi-CBDC
arrangements involving multiple central banks and currencies.
Within the new functions unlocked by wholesale CBDCs, one set of applications deserves
special mention – namely, those stemming from the tokenisation of deposits (M1), and other
forms of money that are represented on permissioned DLT networks.25 The role of intermediaries
in settling transactions was one of the major advances in the history of money, tracing back to
the role of public deposit banks in Europe in the early history of central banking.26 Bank deposits
serve as the payment medium, as the intermediary debits the account of the payer and credits the
account of the receiver. The tokenisation of deposits takes this principle and translates the
operation to DLT by creating a digital representation of deposits on the DLT platform, and
settling them in a decentralised manner. This could facilitate new forms of exchange, including
fractional ownership of securities and real assets, allowing for innovative financial services that
extend well beyond payments.
At the customer-facing, or "retail" level, the enhanced capabilities of the financial
intermediaries benefit users in the form of improved interoperability between customer-facing
platforms provided by intermediaries. Core to this interoperability are APIs, through which users
of one platform can easily communicate and send instructions to other, interlinked platforms.
This way, innovations at the retail level promote greater competition, lower costs and expanded
financial inclusion.
Concretely, retail FPS and retail CBDCs constitute another core feature of the future
monetary system. Retail FPS are systems in which the transmission of a payment message and
the availability of final funds to the payee occur in (near) real time, on or as near to 24/7 as
possible. Many are operated by the central bank. Retail CBDCs are a type of CBDC that is
directly accessible by households and businesses. Both retail CBDCs and FPS allow for instant
payments between end users, through a range of interfaces and competing private PSPs. They
hence build on the two-tiered system of the central bank and private PSPs. Retail CBDCs and
FPS share a number of further key features and can thus be seen as lying on a continuum. Both
are supported by a data architecture with digital identification and APIs that enable secure data
exchange, thus supporting greater user control over financial data. By providing an open
platform, they promote efficiency and greater competition between private sector PSPs, thus
facilitating lower costs in payment services. Through inclusive design features, both can support
financial inclusion for users that currently do not have access to digital payments.
Details of the wholesale and retail components are expanded upon below. For each of
these, an advanced representation of central bank money supports private sector services that
serve the real economy. The central bank supports the singleness of the currency, and
interoperability – the ability of participants to transact in different systems without having to
participate in each.27 This allows network effects to take hold, whereby the use of a service by
one party makes it more attractive for others.
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.
Components of the future monetary system
The future monetary system builds on the tried and trusted division of roles between the
central bank – which provides the foundations of the system – and private sector entities that
conduct the customer-facing activities. On top of this traditional division of labour come new
standards such as application programming interfaces (APIs, see glossary) that greatly enhance
the interoperability of services and associated network effects. Not least are new technical
capabilities encompassing programmability, composability and tokenisation, which have so far
been associated with the crypto universe.
This vision contains components at both the wholesale and retail level, which enable a
number of new features (in bold).
At the wholesale level, central bank digital currencies (CBDCs) can offer new capabilities
and enable transactions between financial intermediaries that go beyond the traditional medium
of central bank reserves. Wholesale CBDCs that are transacted using permissioned distributed
ledger technology (DLT) offer programmability and atomic settlement, so that transactions are
executed automatically when set conditions are met. They allow a number of different functions
to be combined and executed together, thus facilitating the composability of transactions. These
new capabilities not only permit the expansion of the types of transactions, but also enable
transactions between a much wider range of financial intermediaries – not just commercial
banks. Wholesale CBDCs also work together across borders, through multi-CBDC
arrangements involving multiple central banks and currencies.
Within the new functions unlocked by wholesale CBDCs, one set of applications deserves
special mention – namely, those stemming from the tokenisation of deposits (M1), and other
forms of money that are represented on permissioned DLT networks.25 The role of intermediaries
in settling transactions was one of the major advances in the history of money, tracing back to
the role of public deposit banks in Europe in the early history of central banking.26 Bank deposits
serve as the payment medium, as the intermediary debits the account of the payer and credits the
account of the receiver. The tokenisation of deposits takes this principle and translates the
operation to DLT by creating a digital representation of deposits on the DLT platform, and
settling them in a decentralised manner. This could facilitate new forms of exchange, including
fractional ownership of securities and real assets, allowing for innovative financial services that
extend well beyond payments.
At the customer-facing, or "retail" level, the enhanced capabilities of the financial
intermediaries benefit users in the form of improved interoperability between customer-facing
platforms provided by intermediaries. Core to this interoperability are APIs, through which users
of one platform can easily communicate and send instructions to other, interlinked platforms.
This way, innovations at the retail level promote greater competition, lower costs and expanded
financial inclusion.
Concretely, retail FPS and retail CBDCs constitute another core feature of the future
monetary system. Retail FPS are systems in which the transmission of a payment message and
the availability of final funds to the payee occur in (near) real time, on or as near to 24/7 as
possible. Many are operated by the central bank. Retail CBDCs are a type of CBDC that is
directly accessible by households and businesses. Both retail CBDCs and FPS allow for instant
payments between end users, through a range of interfaces and competing private PSPs. They
hence build on the two-tiered system of the central bank and private PSPs. Retail CBDCs and
FPS share a number of further key features and can thus be seen as lying on a continuum. Both
are supported by a data architecture with digital identification and APIs that enable secure data
exchange, thus supporting greater user control over financial data. By providing an open
platform, they promote efficiency and greater competition between private sector PSPs, thus
facilitating lower costs in payment services. Through inclusive design features, both can support
financial inclusion for users that currently do not have access to digital payments.
Details of the wholesale and retail components are expanded upon below. For each of
these, an advanced representation of central bank money supports private sector services that
serve the real economy. The central bank supports the singleness of the currency, and
interoperability – the ability of participants to transact in different systems without having to
participate in each.27 This allows network effects to take hold, whereby the use of a service by
one party makes it more attractive for others.
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.
Components of the future monetary system
The future monetary system builds on the tried and trusted division of roles between the
central bank – which provides the foundations of the system – and private sector entities that
conduct the customer-facing activities. On top of this traditional division of labour come new
standards such as application programming interfaces (APIs, see glossary) that greatly enhance
the interoperability of services and associated network effects. Not least are new technical
capabilities encompassing programmability, composability and tokenisation, which have so far
been associated with the crypto universe.
This vision contains components at both the wholesale and retail level, which enable a
number of new features (in bold).
At the wholesale level, central bank digital currencies (CBDCs) can offer new capabilities
and enable transactions between financial intermediaries that go beyond the traditional medium
of central bank reserves. Wholesale CBDCs that are transacted using permissioned distributed
ledger technology (DLT) offer programmability and atomic settlement, so that transactions are
executed automatically when set conditions are met. They allow a number of different functions
to be combined and executed together, thus facilitating the composability of transactions. These
new capabilities not only permit the expansion of the types of transactions, but also enable
transactions between a much wider range of financial intermediaries – not just commercial
banks. Wholesale CBDCs also work together across borders, through multi-CBDC
arrangements involving multiple central banks and currencies.
Within the new functions unlocked by wholesale CBDCs, one set of applications deserves
special mention – namely, those stemming from the tokenisation of deposits (M1), and other
forms of money that are represented on permissioned DLT networks.25 The role of intermediaries
in settling transactions was one of the major advances in the history of money, tracing back to
the role of public deposit banks in Europe in the early history of central banking.26 Bank deposits
serve as the payment medium, as the intermediary debits the account of the payer and credits the
account of the receiver. The tokenisation of deposits takes this principle and translates the
operation to DLT by creating a digital representation of deposits on the DLT platform, and
settling them in a decentralised manner. This could facilitate new forms of exchange, including
fractional ownership of securities and real assets, allowing for innovative financial services that
extend well beyond payments.
At the customer-facing, or "retail" level, the enhanced capabilities of the financial
intermediaries benefit users in the form of improved interoperability between customer-facing
platforms provided by intermediaries. Core to this interoperability are APIs, through which users
of one platform can easily communicate and send instructions to other, interlinked platforms.
This way, innovations at the retail level promote greater competition, lower costs and expanded
financial inclusion.
Concretely, retail FPS and retail CBDCs constitute another core feature of the future
monetary system. Retail FPS are systems in which the transmission of a payment message and
the availability of final funds to the payee occur in (near) real time, on or as near to 24/7 as
possible. Many are operated by the central bank. Retail CBDCs are a type of CBDC that is
directly accessible by households and businesses. Both retail CBDCs and FPS allow for instant
payments between end users, through a range of interfaces and competing private PSPs. They
hence build on the two-tiered system of the central bank and private PSPs. Retail CBDCs and
FPS share a number of further key features and can thus be seen as lying on a continuum. Both
are supported by a data architecture with digital identification and APIs that enable secure data
exchange, thus supporting greater user control over financial data. By providing an open
platform, they promote efficiency and greater competition between private sector PSPs, thus
facilitating lower costs in payment services. Through inclusive design features, both can support
financial inclusion for users that currently do not have access to digital payments.
Details of the wholesale and retail components are expanded upon below. For each of
these, an advanced representation of central bank money supports private sector services that
serve the real economy. The central bank supports the singleness of the currency, and
interoperability – the ability of participants to transact in different systems without having to
participate in each.27 This allows network effects to take hold, whereby the use of a service by
one party makes it more attractive for others.
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.
Components of the future monetary system
The future monetary system builds on the tried and trusted division of roles between the
central bank – which provides the foundations of the system – and private sector entities that
conduct the customer-facing activities. On top of this traditional division of labour come new
standards such as application programming interfaces (APIs, see glossary) that greatly enhance
the interoperability of services and associated network effects. Not least are new technical
capabilities encompassing programmability, composability and tokenisation, which have so far
been associated with the crypto universe.
This vision contains components at both the wholesale and retail level, which enable a
number of new features (in bold).
At the wholesale level, central bank digital currencies (CBDCs) can offer new capabilities
and enable transactions between financial intermediaries that go beyond the traditional medium
of central bank reserves. Wholesale CBDCs that are transacted using permissioned distributed
ledger technology (DLT) offer programmability and atomic settlement, so that transactions are
executed automatically when set conditions are met. They allow a number of different functions
to be combined and executed together, thus facilitating the composability of transactions. These
new capabilities not only permit the expansion of the types of transactions, but also enable
transactions between a much wider range of financial intermediaries – not just commercial
banks. Wholesale CBDCs also work together across borders, through multi-CBDC
arrangements involving multiple central banks and currencies.
Within the new functions unlocked by wholesale CBDCs, one set of applications deserves
special mention – namely, those stemming from the tokenisation of deposits (M1), and other
forms of money that are represented on permissioned DLT networks.25 The role of intermediaries
in settling transactions was one of the major advances in the history of money, tracing back to
the role of public deposit banks in Europe in the early history of central banking.26 Bank deposits
serve as the payment medium, as the intermediary debits the account of the payer and credits the
account of the receiver. The tokenisation of deposits takes this principle and translates the
operation to DLT by creating a digital representation of deposits on the DLT platform, and
settling them in a decentralised manner. This could facilitate new forms of exchange, including
fractional ownership of securities and real assets, allowing for innovative financial services that
extend well beyond payments.
At the customer-facing, or "retail" level, the enhanced capabilities of the financial
intermediaries benefit users in the form of improved interoperability between customer-facing
platforms provided by intermediaries. Core to this interoperability are APIs, through which users
of one platform can easily communicate and send instructions to other, interlinked platforms.
This way, innovations at the retail level promote greater competition, lower costs and expanded
financial inclusion.
Concretely, retail FPS and retail CBDCs constitute another core feature of the future
monetary system. Retail FPS are systems in which the transmission of a payment message and
the availability of final funds to the payee occur in (near) real time, on or as near to 24/7 as
possible. Many are operated by the central bank. Retail CBDCs are a type of CBDC that is
directly accessible by households and businesses. Both retail CBDCs and FPS allow for instant
payments between end users, through a range of interfaces and competing private PSPs. They
hence build on the two-tiered system of the central bank and private PSPs. Retail CBDCs and
FPS share a number of further key features and can thus be seen as lying on a continuum. Both
are supported by a data architecture with digital identification and APIs that enable secure data
exchange, thus supporting greater user control over financial data. By providing an open
platform, they promote efficiency and greater competition between private sector PSPs, thus
facilitating lower costs in payment services. Through inclusive design features, both can support
financial inclusion for users that currently do not have access to digital payments.
Details of the wholesale and retail components are expanded upon below. For each of
these, an advanced representation of central bank money supports private sector services that
serve the real economy. The central bank supports the singleness of the currency, and
interoperability – the ability of participants to transact in different systems without having to
participate in each.27 This allows network effects to take hold, whereby the use of a service by
one party makes it more attractive for others.
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.
Components of the future monetary system
The future monetary system builds on the tried and trusted division of roles between the
central bank – which provides the foundations of the system – and private sector entities that
conduct the customer-facing activities. On top of this traditional division of labour come new
standards such as application programming interfaces (APIs, see glossary) that greatly enhance
the interoperability of services and associated network effects. Not least are new technical
capabilities encompassing programmability, composability and tokenisation, which have so far
been associated with the crypto universe.
This vision contains components at both the wholesale and retail level, which enable a
number of new features (in bold).
At the wholesale level, central bank digital currencies (CBDCs) can offer new capabilities
and enable transactions between financial intermediaries that go beyond the traditional medium
of central bank reserves. Wholesale CBDCs that are transacted using permissioned distributed
ledger technology (DLT) offer programmability and atomic settlement, so that transactions are
executed automatically when set conditions are met. They allow a number of different functions
to be combined and executed together, thus facilitating the composability of transactions. These
new capabilities not only permit the expansion of the types of transactions, but also enable
transactions between a much wider range of financial intermediaries – not just commercial
banks. Wholesale CBDCs also work together across borders, through multi-CBDC
arrangements involving multiple central banks and currencies.
Within the new functions unlocked by wholesale CBDCs, one set of applications deserves
special mention – namely, those stemming from the tokenisation of deposits (M1), and other
forms of money that are represented on permissioned DLT networks.25 The role of intermediaries
in settling transactions was one of the major advances in the history of money, tracing back to
the role of public deposit banks in Europe in the early history of central banking.26 Bank deposits
serve as the payment medium, as the intermediary debits the account of the payer and credits the
account of the receiver. The tokenisation of deposits takes this principle and translates the
operation to DLT by creating a digital representation of deposits on the DLT platform, and
settling them in a decentralised manner. This could facilitate new forms of exchange, including
fractional ownership of securities and real assets, allowing for innovative financial services that
extend well beyond payments.
At the customer-facing, or "retail" level, the enhanced capabilities of the financial
intermediaries benefit users in the form of improved interoperability between customer-facing
platforms provided by intermediaries. Core to this interoperability are APIs, through which users
of one platform can easily communicate and send instructions to other, interlinked platforms.
This way, innovations at the retail level promote greater competition, lower costs and expanded
financial inclusion.
Concretely, retail FPS and retail CBDCs constitute another core feature of the future
monetary system. Retail FPS are systems in which the transmission of a payment message and
the availability of final funds to the payee occur in (near) real time, on or as near to 24/7 as
possible. Many are operated by the central bank. Retail CBDCs are a type of CBDC that is
directly accessible by households and businesses. Both retail CBDCs and FPS allow for instant
payments between end users, through a range of interfaces and competing private PSPs. They
hence build on the two-tiered system of the central bank and private PSPs. Retail CBDCs and
FPS share a number of further key features and can thus be seen as lying on a continuum. Both
are supported by a data architecture with digital identification and APIs that enable secure data
exchange, thus supporting greater user control over financial data. By providing an open
platform, they promote efficiency and greater competition between private sector PSPs, thus
facilitating lower costs in payment services. Through inclusive design features, both can support
financial inclusion for users that currently do not have access to digital payments.
Details of the wholesale and retail components are expanded upon below. For each of
these, an advanced representation of central bank money supports private sector services that
serve the real economy. The central bank supports the singleness of the currency, and
interoperability – the ability of participants to transact in different systems without having to
participate in each.27 This allows network effects to take hold, whereby the use of a service by
one party makes it more attractive for others.
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.
Components of the future monetary system
The future monetary system builds on the tried and trusted division of roles between the
central bank – which provides the foundations of the system – and private sector entities that
conduct the customer-facing activities. On top of this traditional division of labour come new
standards such as application programming interfaces (APIs, see glossary) that greatly enhance
the interoperability of services and associated network effects. Not least are new technical
capabilities encompassing programmability, composability and tokenisation, which have so far
been associated with the crypto universe.
This vision contains components at both the wholesale and retail level, which enable a
number of new features (in bold).
At the wholesale level, central bank digital currencies (CBDCs) can offer new capabilities
and enable transactions between financial intermediaries that go beyond the traditional medium
of central bank reserves. Wholesale CBDCs that are transacted using permissioned distributed
ledger technology (DLT) offer programmability and atomic settlement, so that transactions are
executed automatically when set conditions are met. They allow a number of different functions
to be combined and executed together, thus facilitating the composability of transactions. These
new capabilities not only permit the expansion of the types of transactions, but also enable
transactions between a much wider range of financial intermediaries – not just commercial
banks. Wholesale CBDCs also work together across borders, through multi-CBDC
arrangements involving multiple central banks and currencies.
Within the new functions unlocked by wholesale CBDCs, one set of applications deserves
special mention – namely, those stemming from the tokenisation of deposits (M1), and other
forms of money that are represented on permissioned DLT networks.25 The role of intermediaries
in settling transactions was one of the major advances in the history of money, tracing back to
the role of public deposit banks in Europe in the early history of central banking.26 Bank deposits
serve as the payment medium, as the intermediary debits the account of the payer and credits the
account of the receiver. The tokenisation of deposits takes this principle and translates the
operation to DLT by creating a digital representation of deposits on the DLT platform, and
settling them in a decentralised manner. This could facilitate new forms of exchange, including
fractional ownership of securities and real assets, allowing for innovative financial services that
extend well beyond payments.
At the customer-facing, or "retail" level, the enhanced capabilities of the financial
intermediaries benefit users in the form of improved interoperability between customer-facing
platforms provided by intermediaries. Core to this interoperability are APIs, through which users
of one platform can easily communicate and send instructions to other, interlinked platforms.
This way, innovations at the retail level promote greater competition, lower costs and expanded
financial inclusion.
Concretely, retail FPS and retail CBDCs constitute another core feature of the future
monetary system. Retail FPS are systems in which the transmission of a payment message and
the availability of final funds to the payee occur in (near) real time, on or as near to 24/7 as
possible. Many are operated by the central bank. Retail CBDCs are a type of CBDC that is
directly accessible by households and businesses. Both retail CBDCs and FPS allow for instant
payments between end users, through a range of interfaces and competing private PSPs. They
hence build on the two-tiered system of the central bank and private PSPs. Retail CBDCs and
FPS share a number of further key features and can thus be seen as lying on a continuum. Both
are supported by a data architecture with digital identification and APIs that enable secure data
exchange, thus supporting greater user control over financial data. By providing an open
platform, they promote efficiency and greater competition between private sector PSPs, thus
facilitating lower costs in payment services. Through inclusive design features, both can support
financial inclusion for users that currently do not have access to digital payments.
Details of the wholesale and retail components are expanded upon below. For each of
these, an advanced representation of central bank money supports private sector services that
serve the real economy. The central bank supports the singleness of the currency, and
interoperability – the ability of participants to transact in different systems without having to
participate in each.27 This allows network effects to take hold, whereby the use of a service by
one party makes it more attractive for others.
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.
Components of the future monetary system
The future monetary system builds on the tried and trusted division of roles between the
central bank – which provides the foundations of the system – and private sector entities that
conduct the customer-facing activities. On top of this traditional division of labour come new
standards such as application programming interfaces (APIs, see glossary) that greatly enhance
the interoperability of services and associated network effects. Not least are new technical
capabilities encompassing programmability, composability and tokenisation, which have so far
been associated with the crypto universe.
This vision contains components at both the wholesale and retail level, which enable a
number of new features (in bold).
At the wholesale level, central bank digital currencies (CBDCs) can offer new capabilities
and enable transactions between financial intermediaries that go beyond the traditional medium
of central bank reserves. Wholesale CBDCs that are transacted using permissioned distributed
ledger technology (DLT) offer programmability and atomic settlement, so that transactions are
executed automatically when set conditions are met. They allow a number of different functions
to be combined and executed together, thus facilitating the composability of transactions. These
new capabilities not only permit the expansion of the types of transactions, but also enable
transactions between a much wider range of financial intermediaries – not just commercial
banks. Wholesale CBDCs also work together across borders, through multi-CBDC
arrangements involving multiple central banks and currencies.
Within the new functions unlocked by wholesale CBDCs, one set of applications deserves
special mention – namely, those stemming from the tokenisation of deposits (M1), and other
forms of money that are represented on permissioned DLT networks.25 The role of intermediaries
in settling transactions was one of the major advances in the history of money, tracing back to
the role of public deposit banks in Europe in the early history of central banking.26 Bank deposits
serve as the payment medium, as the intermediary debits the account of the payer and credits the
account of the receiver. The tokenisation of deposits takes this principle and translates the
operation to DLT by creating a digital representation of deposits on the DLT platform, and
settling them in a decentralised manner. This could facilitate new forms of exchange, including
fractional ownership of securities and real assets, allowing for innovative financial services that
extend well beyond payments.
At the customer-facing, or "retail" level, the enhanced capabilities of the financial
intermediaries benefit users in the form of improved interoperability between customer-facing
platforms provided by intermediaries. Core to this interoperability are APIs, through which users
of one platform can easily communicate and send instructions to other, interlinked platforms.
This way, innovations at the retail level promote greater competition, lower costs and expanded
financial inclusion.
Concretely, retail FPS and retail CBDCs constitute another core feature of the future
monetary system. Retail FPS are systems in which the transmission of a payment message and
the availability of final funds to the payee occur in (near) real time, on or as near to 24/7 as
possible. Many are operated by the central bank. Retail CBDCs are a type of CBDC that is
directly accessible by households and businesses. Both retail CBDCs and FPS allow for instant
payments between end users, through a range of interfaces and competing private PSPs. They
hence build on the two-tiered system of the central bank and private PSPs. Retail CBDCs and
FPS share a number of further key features and can thus be seen as lying on a continuum. Both
are supported by a data architecture with digital identification and APIs that enable secure data
exchange, thus supporting greater user control over financial data. By providing an open
platform, they promote efficiency and greater competition between private sector PSPs, thus
facilitating lower costs in payment services. Through inclusive design features, both can support
financial inclusion for users that currently do not have access to digital payments.
Details of the wholesale and retail components are expanded upon below. For each of
these, an advanced representation of central bank money supports private sector services that
serve the real economy. The central bank supports the singleness of the currency, and
interoperability – the ability of participants to transact in different systems without having to
participate in each.27 This allows network effects to take hold, whereby the use of a service by
one party makes it more attractive for others.
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.
Components of the future monetary system
The future monetary system builds on the tried and trusted division of roles between the
central bank – which provides the foundations of the system – and private sector entities that
conduct the customer-facing activities. On top of this traditional division of labour come new
standards such as application programming interfaces (APIs, see glossary) that greatly enhance
the interoperability of services and associated network effects. Not least are new technical
capabilities encompassing programmability, composability and tokenisation, which have so far
been associated with the crypto universe.
This vision contains components at both the wholesale and retail level, which enable a
number of new features (in bold).
At the wholesale level, central bank digital currencies (CBDCs) can offer new capabilities
and enable transactions between financial intermediaries that go beyond the traditional medium
of central bank reserves. Wholesale CBDCs that are transacted using permissioned distributed
ledger technology (DLT) offer programmability and atomic settlement, so that transactions are
executed automatically when set conditions are met. They allow a number of different functions
to be combined and executed together, thus facilitating the composability of transactions. These
new capabilities not only permit the expansion of the types of transactions, but also enable
transactions between a much wider range of financial intermediaries – not just commercial
banks. Wholesale CBDCs also work together across borders, through multi-CBDC
arrangements involving multiple central banks and currencies.
Within the new functions unlocked by wholesale CBDCs, one set of applications deserves
special mention – namely, those stemming from the tokenisation of deposits (M1), and other
forms of money that are represented on permissioned DLT networks.25 The role of intermediaries
in settling transactions was one of the major advances in the history of money, tracing back to
the role of public deposit banks in Europe in the early history of central banking.26 Bank deposits
serve as the payment medium, as the intermediary debits the account of the payer and credits the
account of the receiver. The tokenisation of deposits takes this principle and translates the
operation to DLT by creating a digital representation of deposits on the DLT platform, and
settling them in a decentralised manner. This could facilitate new forms of exchange, including
fractional ownership of securities and real assets, allowing for innovative financial services that
extend well beyond payments.
At the customer-facing, or "retail" level, the enhanced capabilities of the financial
intermediaries benefit users in the form of improved interoperability between customer-facing
platforms provided by intermediaries. Core to this interoperability are APIs, through which users
of one platform can easily communicate and send instructions to other, interlinked platforms.
This way, innovations at the retail level promote greater competition, lower costs and expanded
financial inclusion.
Concretely, retail FPS and retail CBDCs constitute another core feature of the future
monetary system. Retail FPS are systems in which the transmission of a payment message and
the availability of final funds to the payee occur in (near) real time, on or as near to 24/7 as
possible. Many are operated by the central bank. Retail CBDCs are a type of CBDC that is
directly accessible by households and businesses. Both retail CBDCs and FPS allow for instant
payments between end users, through a range of interfaces and competing private PSPs. They
hence build on the two-tiered system of the central bank and private PSPs. Retail CBDCs and
FPS share a number of further key features and can thus be seen as lying on a continuum. Both
are supported by a data architecture with digital identification and APIs that enable secure data
exchange, thus supporting greater user control over financial data. By providing an open
platform, they promote efficiency and greater competition between private sector PSPs, thus
facilitating lower costs in payment services. Through inclusive design features, both can support
financial inclusion for users that currently do not have access to digital payments.
Details of the wholesale and retail components are expanded upon below. For each of
these, an advanced representation of central bank money supports private sector services that
serve the real economy. The central bank supports the singleness of the currency, and
interoperability – the ability of participants to transact in different systems without having to
participate in each.27 This allows network effects to take hold, whereby the use of a service by
one party makes it more attractive for others.
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.
Components of the future monetary system
The future monetary system builds on the tried and trusted division of roles between the
central bank – which provides the foundations of the system – and private sector entities that
conduct the customer-facing activities. On top of this traditional division of labour come new
standards such as application programming interfaces (APIs, see glossary) that greatly enhance
the interoperability of services and associated network effects. Not least are new technical
capabilities encompassing programmability, composability and tokenisation, which have so far
been associated with the crypto universe.
This vision contains components at both the wholesale and retail level, which enable a
number of new features (in bold).
At the wholesale level, central bank digital currencies (CBDCs) can offer new capabilities
and enable transactions between financial intermediaries that go beyond the traditional medium
of central bank reserves. Wholesale CBDCs that are transacted using permissioned distributed
ledger technology (DLT) offer programmability and atomic settlement, so that transactions are
executed automatically when set conditions are met. They allow a number of different functions
to be combined and executed together, thus facilitating the composability of transactions. These
new capabilities not only permit the expansion of the types of transactions, but also enable
transactions between a much wider range of financial intermediaries – not just commercial
banks. Wholesale CBDCs also work together across borders, through multi-CBDC
arrangements involving multiple central banks and currencies.
Within the new functions unlocked by wholesale CBDCs, one set of applications deserves
special mention – namely, those stemming from the tokenisation of deposits (M1), and other
forms of money that are represented on permissioned DLT networks.25 The role of intermediaries
in settling transactions was one of the major advances in the history of money, tracing back to
the role of public deposit banks in Europe in the early history of central banking.26 Bank deposits
serve as the payment medium, as the intermediary debits the account of the payer and credits the
account of the receiver. The tokenisation of deposits takes this principle and translates the
operation to DLT by creating a digital representation of deposits on the DLT platform, and
settling them in a decentralised manner. This could facilitate new forms of exchange, including
fractional ownership of securities and real assets, allowing for innovative financial services that
extend well beyond payments.
At the customer-facing, or "retail" level, the enhanced capabilities of the financial
intermediaries benefit users in the form of improved interoperability between customer-facing
platforms provided by intermediaries. Core to this interoperability are APIs, through which users
of one platform can easily communicate and send instructions to other, interlinked platforms.
This way, innovations at the retail level promote greater competition, lower costs and expanded
financial inclusion.
Concretely, retail FPS and retail CBDCs constitute another core feature of the future
monetary system. Retail FPS are systems in which the transmission of a payment message and
the availability of final funds to the payee occur in (near) real time, on or as near to 24/7 as
possible. Many are operated by the central bank. Retail CBDCs are a type of CBDC that is
directly accessible by households and businesses. Both retail CBDCs and FPS allow for instant
payments between end users, through a range of interfaces and competing private PSPs. They
hence build on the two-tiered system of the central bank and private PSPs. Retail CBDCs and
FPS share a number of further key features and can thus be seen as lying on a continuum. Both
are supported by a data architecture with digital identification and APIs that enable secure data
exchange, thus supporting greater user control over financial data. By providing an open
platform, they promote efficiency and greater competition between private sector PSPs, thus
facilitating lower costs in payment services. Through inclusive design features, both can support
financial inclusion for users that currently do not have access to digital payments.
Details of the wholesale and retail components are expanded upon below. For each of
these, an advanced representation of central bank money supports private sector services that
serve the real economy. The central bank supports the singleness of the currency, and
interoperability – the ability of participants to transact in different systems without having to
participate in each.27 This allows network effects to take hold, whereby the use of a service by
one party makes it more attractive for others.
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.
Components of the future monetary system
The future monetary system builds on the tried and trusted division of roles between the
central bank – which provides the foundations of the system – and private sector entities that
conduct the customer-facing activities. On top of this traditional division of labour come new
standards such as application programming interfaces (APIs, see glossary) that greatly enhance
the interoperability of services and associated network effects. Not least are new technical
capabilities encompassing programmability, composability and tokenisation, which have so far
been associated with the crypto universe.
This vision contains components at both the wholesale and retail level, which enable a
number of new features (in bold).
At the wholesale level, central bank digital currencies (CBDCs) can offer new capabilities
and enable transactions between financial intermediaries that go beyond the traditional medium
of central bank reserves. Wholesale CBDCs that are transacted using permissioned distributed
ledger technology (DLT) offer programmability and atomic settlement, so that transactions are
executed automatically when set conditions are met. They allow a number of different functions
to be combined and executed together, thus facilitating the composability of transactions. These
new capabilities not only permit the expansion of the types of transactions, but also enable
transactions between a much wider range of financial intermediaries – not just commercial
banks. Wholesale CBDCs also work together across borders, through multi-CBDC
arrangements involving multiple central banks and currencies.
Within the new functions unlocked by wholesale CBDCs, one set of applications deserves
special mention – namely, those stemming from the tokenisation of deposits (M1), and other
forms of money that are represented on permissioned DLT networks.25 The role of intermediaries
in settling transactions was one of the major advances in the history of money, tracing back to
the role of public deposit banks in Europe in the early history of central banking.26 Bank deposits
serve as the payment medium, as the intermediary debits the account of the payer and credits the
account of the receiver. The tokenisation of deposits takes this principle and translates the
operation to DLT by creating a digital representation of deposits on the DLT platform, and
settling them in a decentralised manner. This could facilitate new forms of exchange, including
fractional ownership of securities and real assets, allowing for innovative financial services that
extend well beyond payments.
At the customer-facing, or "retail" level, the enhanced capabilities of the financial
intermediaries benefit users in the form of improved interoperability between customer-facing
platforms provided by intermediaries. Core to this interoperability are APIs, through which users
of one platform can easily communicate and send instructions to other, interlinked platforms.
This way, innovations at the retail level promote greater competition, lower costs and expanded
financial inclusion.
Concretely, retail FPS and retail CBDCs constitute another core feature of the future
monetary system. Retail FPS are systems in which the transmission of a payment message and
the availability of final funds to the payee occur in (near) real time, on or as near to 24/7 as
possible. Many are operated by the central bank. Retail CBDCs are a type of CBDC that is
directly accessible by households and businesses. Both retail CBDCs and FPS allow for instant
payments between end users, through a range of interfaces and competing private PSPs. They
hence build on the two-tiered system of the central bank and private PSPs. Retail CBDCs and
FPS share a number of further key features and can thus be seen as lying on a continuum. Both
are supported by a data architecture with digital identification and APIs that enable secure data
exchange, thus supporting greater user control over financial data. By providing an open
platform, they promote efficiency and greater competition between private sector PSPs, thus
facilitating lower costs in payment services. Through inclusive design features, both can support
financial inclusion for users that currently do not have access to digital payments.
Details of the wholesale and retail components are expanded upon below. For each of
these, an advanced representation of central bank money supports private sector services that
serve the real economy. The central bank supports the singleness of the currency, and
interoperability – the ability of participants to transact in different systems without having to
participate in each.27 This allows network effects to take hold, whereby the use of a service by
one party makes it more attractive for others.
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.
Components of the future monetary system
The future monetary system builds on the tried and trusted division of roles between the
central bank – which provides the foundations of the system – and private sector entities that
conduct the customer-facing activities. On top of this traditional division of labour come new
standards such as application programming interfaces (APIs, see glossary) that greatly enhance
the interoperability of services and associated network effects. Not least are new technical
capabilities encompassing programmability, composability and tokenisation, which have so far
been associated with the crypto universe.
This vision contains components at both the wholesale and retail level, which enable a
number of new features (in bold).
At the wholesale level, central bank digital currencies (CBDCs) can offer new capabilities
and enable transactions between financial intermediaries that go beyond the traditional medium
of central bank reserves. Wholesale CBDCs that are transacted using permissioned distributed
ledger technology (DLT) offer programmability and atomic settlement, so that transactions are
executed automatically when set conditions are met. They allow a number of different functions
to be combined and executed together, thus facilitating the composability of transactions. These
new capabilities not only permit the expansion of the types of transactions, but also enable
transactions between a much wider range of financial intermediaries – not just commercial
banks. Wholesale CBDCs also work together across borders, through multi-CBDC
arrangements involving multiple central banks and currencies.
Within the new functions unlocked by wholesale CBDCs, one set of applications deserves
special mention – namely, those stemming from the tokenisation of deposits (M1), and other
forms of money that are represented on permissioned DLT networks.25 The role of intermediaries
in settling transactions was one of the major advances in the history of money, tracing back to
the role of public deposit banks in Europe in the early history of central banking.26 Bank deposits
serve as the payment medium, as the intermediary debits the account of the payer and credits the
account of the receiver. The tokenisation of deposits takes this principle and translates the
operation to DLT by creating a digital representation of deposits on the DLT platform, and
settling them in a decentralised manner. This could facilitate new forms of exchange, including
fractional ownership of securities and real assets, allowing for innovative financial services that
extend well beyond payments.
At the customer-facing, or "retail" level, the enhanced capabilities of the financial
intermediaries benefit users in the form of improved interoperability between customer-facing
platforms provided by intermediaries. Core to this interoperability are APIs, through which users
of one platform can easily communicate and send instructions to other, interlinked platforms.
This way, innovations at the retail level promote greater competition, lower costs and expanded
financial inclusion.
Concretely, retail FPS and retail CBDCs constitute another core feature of the future
monetary system. Retail FPS are systems in which the transmission of a payment message and
the availability of final funds to the payee occur in (near) real time, on or as near to 24/7 as
possible. Many are operated by the central bank. Retail CBDCs are a type of CBDC that is
directly accessible by households and businesses. Both retail CBDCs and FPS allow for instant
payments between end users, through a range of interfaces and competing private PSPs. They
hence build on the two-tiered system of the central bank and private PSPs. Retail CBDCs and
FPS share a number of further key features and can thus be seen as lying on a continuum. Both
are supported by a data architecture with digital identification and APIs that enable secure data
exchange, thus supporting greater user control over financial data. By providing an open
platform, they promote efficiency and greater competition between private sector PSPs, thus
facilitating lower costs in payment services. Through inclusive design features, both can support
financial inclusion for users that currently do not have access to digital payments.
Details of the wholesale and retail components are expanded upon below. For each of
these, an advanced representation of central bank money supports private sector services that
serve the real economy. The central bank supports the singleness of the currency, and
interoperability – the ability of participants to transact in different systems without having to
participate in each.27 This allows network effects to take hold, whereby the use of a service by
one party makes it more attractive for others.
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.
Components of the future monetary system
The future monetary system builds on the tried and trusted division of roles between the
central bank – which provides the foundations of the system – and private sector entities that
conduct the customer-facing activities. On top of this traditional division of labour come new
standards such as application programming interfaces (APIs, see glossary) that greatly enhance
the interoperability of services and associated network effects. Not least are new technical
capabilities encompassing programmability, composability and tokenisation, which have so far
been associated with the crypto universe.
This vision contains components at both the wholesale and retail level, which enable a
number of new features (in bold).
At the wholesale level, central bank digital currencies (CBDCs) can offer new capabilities
and enable transactions between financial intermediaries that go beyond the traditional medium
of central bank reserves. Wholesale CBDCs that are transacted using permissioned distributed
ledger technology (DLT) offer programmability and atomic settlement, so that transactions are
executed automatically when set conditions are met. They allow a number of different functions
to be combined and executed together, thus facilitating the composability of transactions. These
new capabilities not only permit the expansion of the types of transactions, but also enable
transactions between a much wider range of financial intermediaries – not just commercial
banks. Wholesale CBDCs also work together across borders, through multi-CBDC
arrangements involving multiple central banks and currencies.
Within the new functions unlocked by wholesale CBDCs, one set of applications deserves
special mention – namely, those stemming from the tokenisation of deposits (M1), and other
forms of money that are represented on permissioned DLT networks.25 The role of intermediaries
in settling transactions was one of the major advances in the history of money, tracing back to
the role of public deposit banks in Europe in the early history of central banking.26 Bank deposits
serve as the payment medium, as the intermediary debits the account of the payer and credits the
account of the receiver. The tokenisation of deposits takes this principle and translates the
operation to DLT by creating a digital representation of deposits on the DLT platform, and
settling them in a decentralised manner. This could facilitate new forms of exchange, including
fractional ownership of securities and real assets, allowing for innovative financial services that
extend well beyond payments.
At the customer-facing, or "retail" level, the enhanced capabilities of the financial
intermediaries benefit users in the form of improved interoperability between customer-facing
platforms provided by intermediaries. Core to this interoperability are APIs, through which users
of one platform can easily communicate and send instructions to other, interlinked platforms.
This way, innovations at the retail level promote greater competition, lower costs and expanded
financial inclusion.
Concretely, retail FPS and retail CBDCs constitute another core feature of the future
monetary system. Retail FPS are systems in which the transmission of a payment message and
the availability of final funds to the payee occur in (near) real time, on or as near to 24/7 as
possible. Many are operated by the central bank. Retail CBDCs are a type of CBDC that is
directly accessible by households and businesses. Both retail CBDCs and FPS allow for instant
payments between end users, through a range of interfaces and competing private PSPs. They
hence build on the two-tiered system of the central bank and private PSPs. Retail CBDCs and
FPS share a number of further key features and can thus be seen as lying on a continuum. Both
are supported by a data architecture with digital identification and APIs that enable secure data
exchange, thus supporting greater user control over financial data. By providing an open
platform, they promote efficiency and greater competition between private sector PSPs, thus
facilitating lower costs in payment services. Through inclusive design features, both can support
financial inclusion for users that currently do not have access to digital payments.
Details of the wholesale and retail components are expanded upon below. For each of
these, an advanced representation of central bank money supports private sector services that
serve the real economy. The central bank supports the singleness of the currency, and
interoperability – the ability of participants to transact in different systems without having to
participate in each.27 This allows network effects to take hold, whereby the use of a service by
one party makes it more attractive for others.
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.
Components of the future monetary system
The future monetary system builds on the tried and trusted division of roles between the
central bank – which provides the foundations of the system – and private sector entities that
conduct the customer-facing activities. On top of this traditional division of labour come new
standards such as application programming interfaces (APIs, see glossary) that greatly enhance
the interoperability of services and associated network effects. Not least are new technical
capabilities encompassing programmability, composability and tokenisation, which have so far
been associated with the crypto universe.
This vision contains components at both the wholesale and retail level, which enable a
number of new features (in bold).
At the wholesale level, central bank digital currencies (CBDCs) can offer new capabilities
and enable transactions between financial intermediaries that go beyond the traditional medium
of central bank reserves. Wholesale CBDCs that are transacted using permissioned distributed
ledger technology (DLT) offer programmability and atomic settlement, so that transactions are
executed automatically when set conditions are met. They allow a number of different functions
to be combined and executed together, thus facilitating the composability of transactions. These
new capabilities not only permit the expansion of the types of transactions, but also enable
transactions between a much wider range of financial intermediaries – not just commercial
banks. Wholesale CBDCs also work together across borders, through multi-CBDC
arrangements involving multiple central banks and currencies.
Within the new functions unlocked by wholesale CBDCs, one set of applications deserves
special mention – namely, those stemming from the tokenisation of deposits (M1), and other
forms of money that are represented on permissioned DLT networks.25 The role of intermediaries
in settling transactions was one of the major advances in the history of money, tracing back to
the role of public deposit banks in Europe in the early history of central banking.26 Bank deposits
serve as the payment medium, as the intermediary debits the account of the payer and credits the
account of the receiver. The tokenisation of deposits takes this principle and translates the
operation to DLT by creating a digital representation of deposits on the DLT platform, and
settling them in a decentralised manner. This could facilitate new forms of exchange, including
fractional ownership of securities and real assets, allowing for innovative financial services that
extend well beyond payments.
At the customer-facing, or "retail" level, the enhanced capabilities of the financial
intermediaries benefit users in the form of improved interoperability between customer-facing
platforms provided by intermediaries. Core to this interoperability are APIs, through which users
of one platform can easily communicate and send instructions to other, interlinked platforms.
This way, innovations at the retail level promote greater competition, lower costs and expanded
financial inclusion.
Concretely, retail FPS and retail CBDCs constitute another core feature of the future
monetary system. Retail FPS are systems in which the transmission of a payment message and
the availability of final funds to the payee occur in (near) real time, on or as near to 24/7 as
possible. Many are operated by the central bank. Retail CBDCs are a type of CBDC that is
directly accessible by households and businesses. Both retail CBDCs and FPS allow for instant
payments between end users, through a range of interfaces and competing private PSPs. They
hence build on the two-tiered system of the central bank and private PSPs. Retail CBDCs and
FPS share a number of further key features and can thus be seen as lying on a continuum. Both
are supported by a data architecture with digital identification and APIs that enable secure data
exchange, thus supporting greater user control over financial data. By providing an open
platform, they promote efficiency and greater competition between private sector PSPs, thus
facilitating lower costs in payment services. Through inclusive design features, both can support
financial inclusion for users that currently do not have access to digital payments.
Details of the wholesale and retail components are expanded upon below. For each of
these, an advanced representation of central bank money supports private sector services that
serve the real economy. The central bank supports the singleness of the currency, and
interoperability – the ability of participants to transact in different systems without having to
participate in each.27 This allows network effects to take hold, whereby the use of a service by
one party makes it more attractive for others.
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.
Components of the future monetary system
The future monetary system builds on the tried and trusted division of roles between the
central bank – which provides the foundations of the system – and private sector entities that
conduct the customer-facing activities. On top of this traditional division of labour come new
standards such as application programming interfaces (APIs, see glossary) that greatly enhance
the interoperability of services and associated network effects. Not least are new technical
capabilities encompassing programmability, composability and tokenisation, which have so far
been associated with the crypto universe.
This vision contains components at both the wholesale and retail level, which enable a
number of new features (in bold).
At the wholesale level, central bank digital currencies (CBDCs) can offer new capabilities
and enable transactions between financial intermediaries that go beyond the traditional medium
of central bank reserves. Wholesale CBDCs that are transacted using permissioned distributed
ledger technology (DLT) offer programmability and atomic settlement, so that transactions are
executed automatically when set conditions are met. They allow a number of different functions
to be combined and executed together, thus facilitating the composability of transactions. These
new capabilities not only permit the expansion of the types of transactions, but also enable
transactions between a much wider range of financial intermediaries – not just commercial
banks. Wholesale CBDCs also work together across borders, through multi-CBDC
arrangements involving multiple central banks and currencies.
Within the new functions unlocked by wholesale CBDCs, one set of applications deserves
special mention – namely, those stemming from the tokenisation of deposits (M1), and other
forms of money that are represented on permissioned DLT networks.25 The role of intermediaries
in settling transactions was one of the major advances in the history of money, tracing back to
the role of public deposit banks in Europe in the early history of central banking.26 Bank deposits
serve as the payment medium, as the intermediary debits the account of the payer and credits the
account of the receiver. The tokenisation of deposits takes this principle and translates the
operation to DLT by creating a digital representation of deposits on the DLT platform, and
settling them in a decentralised manner. This could facilitate new forms of exchange, including
fractional ownership of securities and real assets, allowing for innovative financial services that
extend well beyond payments.
At the customer-facing, or "retail" level, the enhanced capabilities of the financial
intermediaries benefit users in the form of improved interoperability between customer-facing
platforms provided by intermediaries. Core to this interoperability are APIs, through which users
of one platform can easily communicate and send instructions to other, interlinked platforms.
This way, innovations at the retail level promote greater competition, lower costs and expanded
financial inclusion.
Concretely, retail FPS and retail CBDCs constitute another core feature of the future
monetary system. Retail FPS are systems in which the transmission of a payment message and
the availability of final funds to the payee occur in (near) real time, on or as near to 24/7 as
possible. Many are operated by the central bank. Retail CBDCs are a type of CBDC that is
directly accessible by households and businesses. Both retail CBDCs and FPS allow for instant
payments between end users, through a range of interfaces and competing private PSPs. They
hence build on the two-tiered system of the central bank and private PSPs. Retail CBDCs and
FPS share a number of further key features and can thus be seen as lying on a continuum. Both
are supported by a data architecture with digital identification and APIs that enable secure data
exchange, thus supporting greater user control over financial data. By providing an open
platform, they promote efficiency and greater competition between private sector PSPs, thus
facilitating lower costs in payment services. Through inclusive design features, both can support
financial inclusion for users that currently do not have access to digital payments.
Details of the wholesale and retail components are expanded upon below. For each of
these, an advanced representation of central bank money supports private sector services that
serve the real economy. The central bank supports the singleness of the currency, and
interoperability – the ability of participants to transact in different systems without having to
participate in each.27 This allows network effects to take hold, whereby the use of a service by
one party makes it more attractive for others.
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.
Components of the future monetary system
The future monetary system builds on the tried and trusted division of roles between the
central bank – which provides the foundations of the system – and private sector entities that
conduct the customer-facing activities. On top of this traditional division of labour come new
standards such as application programming interfaces (APIs, see glossary) that greatly enhance
the interoperability of services and associated network effects. Not least are new technical
capabilities encompassing programmability, composability and tokenisation, which have so far
been associated with the crypto universe.
This vision contains components at both the wholesale and retail level, which enable a
number of new features (in bold).
At the wholesale level, central bank digital currencies (CBDCs) can offer new capabilities
and enable transactions between financial intermediaries that go beyond the traditional medium
of central bank reserves. Wholesale CBDCs that are transacted using permissioned distributed
ledger technology (DLT) offer programmability and atomic settlement, so that transactions are
executed automatically when set conditions are met. They allow a number of different functions
to be combined and executed together, thus facilitating the composability of transactions. These
new capabilities not only permit the expansion of the types of transactions, but also enable
transactions between a much wider range of financial intermediaries – not just commercial
banks. Wholesale CBDCs also work together across borders, through multi-CBDC
arrangements involving multiple central banks and currencies.
Within the new functions unlocked by wholesale CBDCs, one set of applications deserves
special mention – namely, those stemming from the tokenisation of deposits (M1), and other
forms of money that are represented on permissioned DLT networks.25 The role of intermediaries
in settling transactions was one of the major advances in the history of money, tracing back to
the role of public deposit banks in Europe in the early history of central banking.26 Bank deposits
serve as the payment medium, as the intermediary debits the account of the payer and credits the
account of the receiver. The tokenisation of deposits takes this principle and translates the
operation to DLT by creating a digital representation of deposits on the DLT platform, and
settling them in a decentralised manner. This could facilitate new forms of exchange, including
fractional ownership of securities and real assets, allowing for innovative financial services that
extend well beyond payments.
At the customer-facing, or "retail" level, the enhanced capabilities of the financial
intermediaries benefit users in the form of improved interoperability between customer-facing
platforms provided by intermediaries. Core to this interoperability are APIs, through which users
of one platform can easily communicate and send instructions to other, interlinked platforms.
This way, innovations at the retail level promote greater competition, lower costs and expanded
financial inclusion.
Concretely, retail FPS and retail CBDCs constitute another core feature of the future
monetary system. Retail FPS are systems in which the transmission of a payment message and
the availability of final funds to the payee occur in (near) real time, on or as near to 24/7 as
possible. Many are operated by the central bank. Retail CBDCs are a type of CBDC that is
directly accessible by households and businesses. Both retail CBDCs and FPS allow for instant
payments between end users, through a range of interfaces and competing private PSPs. They
hence build on the two-tiered system of the central bank and private PSPs. Retail CBDCs and
FPS share a number of further key features and can thus be seen as lying on a continuum. Both
are supported by a data architecture with digital identification and APIs that enable secure data
exchange, thus supporting greater user control over financial data. By providing an open
platform, they promote efficiency and greater competition between private sector PSPs, thus
facilitating lower costs in payment services. Through inclusive design features, both can support
financial inclusion for users that currently do not have access to digital payments.
Details of the wholesale and retail components are expanded upon below. For each of
these, an advanced representation of central bank money supports private sector services that
serve the real economy. The central bank supports the singleness of the currency, and
interoperability – the ability of participants to transact in different systems without having to
participate in each.27 This allows network effects to take hold, whereby the use of a service by
one party makes it more attractive for others.
