The future of money
The global monetary system is, according to a recent Bank for International Settlements (BIS) publication, at an inflection point, as digital innovation opens new possibilities for how money and assets are recorded, transferred, and settled. This is a critical moment as the transition to the next-generation monetary and financial system must occur while retaining public trust in the foundations of money.
Money has long been considered to fulfil three roles: a unit of account, a medium of exchange, and a store of value. Practically, money needs to be accepted “with no questions asked” as final settlement of an obligation. In the words of the BIS in their Annual Economic Report published in June, this is the basis that “makes prices meaningful, contracts enforceable, and debts dischargeable.”
The present transition of the monetary system is sometimes misunderstood as effectively being synonymous with the digitalization of money. But the future of money is not simply about replacing notes and coins with digital alternatives – most money is already digital. Nor is it principally about Bitcoin or other cryptocurrencies.
Instead, the bigger question is what kind of digital money will people and businesses use, who will issue it, and how will different forms of money interact?
At the center of this debate are four forms of money or monetary arrangements: conventional bank deposits, tokenized bank deposits, stablecoins, and digital or tokenized forms of central bank money. These forms may increasingly compete with one another, but they will also have to coexist. How this plays out could reshape banking, payments, and even the ability of governments and central banks to manage their economies.
Key Takeaways
- The future of money is not simply about digitalization. Most money is already digital. The bigger shift is toward tokenized and programmable forms of money that can move across new financial infrastructure.
- Tokenized bank deposits, stablecoins, and central bank digital currencies (CBDCs) are likely to develop alongside conventional bank deposits rather than replace them entirely.
- Tokenization could make payments and asset settlement more efficient by allowing the transfer of money and ownership to occur together and under predefined conditions.
- Stablecoins could improve areas such as cross-border payments and digital commerce, but large-scale adoption could also affect bank funding, financial stability and monetary sovereignty, particularly where dollar-backed stablecoins become widely used.
- Regulation and interoperability will be central to how these forms of money evolve. The challenge is to capture the benefits of new technology while preserving the stability, convertibility, and trust that underpin an effective monetary system.
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Digitalization of money is already here
Central bank money is the foundation of the modern monetary system. Cash is one form, while the electronic reserves that commercial banks hold at the central bank are another. Commercial bank money is the deposits held by households and businesses. When a bank customer holds $10,000 in a deposit account, that represents a claim on the bank.
Within the existing monetary system, commercial bank deposits and central bank money are designed to exchange at par. A dollar in Bank A is worth exactly the same as a dollar in Bank B, and both are worth the same as a dollar note.
The unit of account concept refers to the coordination on expressing prices, contracts, and balance sheets in a common unit of account. To quote the BIS again, the unit of account is “the numeraire in which value is denominated”; what is key is the collective agreement to use the same unit for economic calculation.”
This is the first foundation of an effective monetary system.
The second, according to the BIS, is the singleness of money, under which claims denominated in that unit are redeemable at par with central bank money with finality.
That sounds obvious, but it is one of the great achievements of modern monetary systems. We do not normally have to ask what kind of dollar we are being paid in.
Tokenization of money
But traditional notions of monetary infrastructure have changed completely with the arrival of tokenization. This is the representation of money or other assets digitally on a programmable platform, often – though not necessarily – using distributed ledger technology (DLT).
Historically, the banking system has separated money from the processes surrounding a transaction. A payment may involve banks, payments networks, clearing systems, securities settlement systems, and reconciliation between different databases.
Tokenization potentially allows the money and the transaction to operate together.
So, for example, transferring ownership of an asset and transferring the money used to purchase the asset no longer need to involve separate processes: the asset changes hands if, and only if, the payment occurs.
So, with tokenization, payments might contain instructions determining when money can be transferred, what conditions must first be satisfied, and what should happen afterwards.
Several different forms of money can move along these new payments rails.
Tokenized deposits represent evolution
For banks, the simplest solution is to keep commercial bank deposits but modernize the technology underneath them.
A tokenized deposit is essentially a bank deposit represented as a digital token. The customer still has a claim on a regulated commercial bank, but that claim can potentially move across tokenized networks and interact directly with other digital assets.
In this way, banks gain many of the technological advantages associated with crypto assets but without abandoning the traditional banking model. Indeed, deposit insurance and other protections may also continue to apply, depending on how the system is designed.
Tokenized deposits could therefore represent evolution rather than revolution.
Stablecoins challenge banking model
Stablecoins pose a major challenge to the traditional banking model. These are digital tokens designed to maintain a stable value relative to a reference asset, most commonly a fiat currency such as the US dollar. Unlike unbacked crypto assets such as Bitcoin, they are intended to limit price volatility, although they can still deviate from their target value.
Stablecoins combine two attractive characteristics in that they resemble conventional money in value while also possessing some of the technological characteristics of crypto assets. They can move rapidly across blockchain networks, operate around the clock, and interact with digital applications.
Stablecoins first became widely used as settlement and liquidity instruments within crypto markets by, for example, allowing traders to move between crypto assets without converting back into bank money. While that remains an important use case, there is much more to stablecoins than cryptocurrency trading: they are increasingly discussed in connection with payments, remittances, cross-border transfers, tokenized asset settlement, and digital commerce.
One of their most frequently cited potential advantages is in cross-border payments where sending money internationally through the conventional banking system can still involve multiple intermediaries, delays, and significant fees.
On the risk side of things, the holder of a stablecoin ultimately depends upon the issuer maintaining adequate assets behind it and honoring redemption requests. If confidence disappears, holders may rush to redeem their coins – something that resembles a traditional bank run.
Digital tokens built for stability are reshaping how money moves across borders and markets.
The battle for bank deposits
The prospect of stablecoins attracting money away from traditional bank deposits means that stablecoins have the potential to change the economics of banking.
At scale, a shift from bank deposits into stablecoins could redirect funding toward the assets held in stablecoin reserves, including bank deposits and short-term government securities. The effect on banks therefore depends partly on the composition of those reserves.
Central Banks and CBDCs
New technologies around money also pose problems for central banks. They want to encourage innovation and therefore in principle encourage faster payments, cheaper international transfers, and more efficient financial markets. At the same time, they are responsible for maintaining confidence in money itself.
In response, central banks have been exploring and, in some cases, developing central bank digital currencies, or CBDCs. A retail CBDC would allow households and businesses to hold digital money that is a direct liability of the central bank rather than of a commercial bank or stablecoin entity: in other words, a form of digital cash.
But this poses a dilemma as it has the potential again to deprive commercial banks of their traditional deposit base. Further, a flight to safety during a financial crisis would see a traditional bank run involving queues outside branches being replaced by a digital bank run conducted through smartphones.
For this reason, many central banks are designing CBDCs with safeguards such as holding limits or restrictions on the interest they pay.
International dimensions of stablecoins
For countries outside the US, widespread adoption of US-dollar stablecoins can create an additional challenge for central banks.
The attraction of digital dollars to countries with unstable currencies is obvious. Individuals and businesses in these locations may increasingly opt to save and transact in that currency rather than their domestic currency.
If large parts of an economy migrate toward dollar stablecoins, this makes it harder for a central bank to influence monetary policy through domestic interest rates. The country could experience a new, digital form of dollarization, compromising monetary sovereignty.
Regulation is key to the future of money
Concerns over the role of stablecoins in the monetary system and crypto in general have led to a matching regulatory response.
The European Union was an early mover through its Markets in Crypto-Assets Regulation (MiCA), which has been fully applicable since the end of 2024. The US followed with the GENIUS Act last year, establishing a federal framework for payment stablecoins that is currently being implemented through detailed regulations. Other jurisdictions, including Hong Kong, have also introduced licensing and regulatory regimes for stablecoin issuers.
While the precise requirements differ, these frameworks increasingly focus on issues such as the quality and liquidity of reserve assets, redemption rights, governance, disclosure, risk management, and regulatory supervision. MiCA, for example, requires reserve assets for asset-referenced tokens and provides detailed redemption protections, while e-money tokens referencing an official currency must be issued and redeemed at par. MiCA also prohibits the payment of interest on asset-referenced tokens and e-money tokens.
The US GENIUS Act similarly requires permitted payment stablecoins to be backed at least one-for-one by specified liquid reserve assets and establishes requirements relating to issues such as redemption, disclosure, and supervision. Detailed implementation rules are still being finalized ahead of the Act’s expected effective date in January 2027.
Regulators worldwide are racing to build the rules that will govern digital money.
Financial crime considerations
There are also difficult questions surrounding financial crime. Public blockchain networks can operate across borders and outside traditional banking channels. Regulators must therefore find ways of applying anti-money laundering (AML) and sanctions requirements without destroying the efficiencies that make the technology attractive.
In this regard, international cooperation will be essential because digital money does not respect national borders.
Coexistence of alternative forms of money
Using the term “battle” in the context of the future of money implies that there will be an overall winner. More likely is the prospect of an uneasy coexistence.
Traditional bank deposits are unlikely to disappear as they are deeply embedded in the financial system and remain a vital source of funding for bank lending.
Tokenized deposits could allow banks to bring this familiar form of money (bank deposits) into programmable financial markets.
Stablecoins may develop alongside them, particularly where they provide advantages in cross-border payments, digital markets, and applications operating across different platforms.
Central bank money will remain at the foundation of the system, potentially supplemented by CBDCs and new forms of central bank settlement infrastructure.
The critical issue will be interoperability between these forms.
Central banks, in particular, will struggle to contemplate a future where there are hundreds of separate tokens circulating on incompatible networks. This, after all, would be a massively retrograde step, with different forms of money trading at different values and possessing different levels of credibility.
The challenge is therefore to obtain the benefits of technological development and diversity while preserving the singleness of money – the principle that $1 remains $1 regardless of the technology through which it moves.
The future of money, therefore, is not about the dominance of one form over another, but the ability to reap the benefits of new infrastructure, while retaining the qualities that successful money has always required: stability, convertibility, and confidence.
Intuition Know-How has a number of tutorials relevant to the content of this article:
-
Payments – An Introduction
- Payments Methods
- Payments Rails & Participants
- Digital Assets
- Cryptography
- Blockchain
- Crypto Assets – An Introduction
- Crypto Assets – Financial Crime Risks
- Crypto Assets – Regulation
- DeFi
- Tokenization
- Stablecoins
- CBDCs
- Monetary Policy
Frequently Asked Questions
What is changing about the future of money?
The future of money is not simply about replacing cash with digital alternatives, since most money is already digital. The bigger change concerns which forms of digital money people and businesses will use, who will issue them, and how they will interact. Conventional bank deposits, tokenized deposits, stablecoins, and digital forms of central bank money may increasingly coexist within the monetary system.
What is tokenization of money?
Tokenization is the digital representation of money or other assets on a programmable platform, often using distributed ledger technology. It can allow money and the transaction surrounding it to operate together. For example, ownership of an asset and the payment used to purchase it could be transferred simultaneously, with programmed instructions determining when funds move and what conditions must first be satisfied.
What are tokenized bank deposits?
Tokenized deposits are conventional commercial bank deposits represented as digital tokens. The customer continues to hold a claim on a regulated bank, but that claim can potentially move across tokenized networks and interact directly with other digital assets. This approach could give banks some of the technological advantages associated with digital assets while retaining the existing banking model and, depending on the system, traditional protections.
How could stablecoins affect traditional banking?
Stablecoins could affect banks by attracting money that would otherwise remain in traditional deposits. At scale, this could change bank funding and redirect money toward the assets held in stablecoin reserves, including bank deposits and short-term government securities. Their impact therefore depends partly on how those reserves are structured, while issuers must also maintain sufficient assets and meet redemption requests to preserve confidence.
What role could central bank digital currencies play?
A retail central bank digital currency could allow households and businesses to hold digital money that is a direct liability of a central bank rather than a commercial bank or stablecoin issuer. This could provide a form of digital cash, but it may also draw deposits away from banks. Some central banks are therefore considering safeguards such as holding limits or restrictions on the interest CBDCs can pay.
Why is regulation important to the future of digital money?
Regulation is important because stablecoins and other forms of digital money introduce questions around reserves, redemption, governance, disclosure, risk management, supervision, and financial crime. Jurisdictions including the European Union, the United States, and Hong Kong have introduced or are implementing regulatory frameworks for stablecoins. International cooperation is also important because digital money can move across borders and operate outside traditional banking channels.
As tokenized deposits, stablecoins and CBDCs reshape how money moves, financial services teams need a clear understanding of the technologies, risks and regulatory developments behind this transition. Intuition helps teams build knowledge across payments, digital assets, tokenization, regulation and monetary policy. Fill out the form below to discuss your learning priorities.
