Shaping the future financial system in the public interest

I hope to contribute to the discussions about CBDCs along two dimensions. First, a longer-term view of why I believe the public sector must focus on innovation. Second, what central bank digital currencies can and cannot do, and the task of developing international standards for them.

Being a great fan of history, I know that we can really only call a moment ‘historic’ in hindsight. Still, I will risk saying that we are going through an inflection point in history, one of those moments when the way we think about a certain topic might be changing in a fundamental way.

Technological progress increases humankind’s appetite for better goods and services. In the area of money and payments, this means transactions should be available 24/7, settle instantly and be generally more efficient domestically as well as across borders.

Technological change has also been so fast and foundational that it might be altering some core concepts of the financial system. Here I am thinking about the notion of money as a social and institutional construct. We accept money today because we expect that other people will accept it tomorrow as well. That trust originates from institutional arrangements that have evolved over generations and have central banks at their core.

Sometimes you may hear claims that the tech industry can replace this framework of trust and functionality with algorithms and encryption. The practical results have been mostly unconvincing so far – in the sense that most of us still use fiat money to pay for our shopping and bills.

But we can already draw two conclusions: one, that there are many technological ideas out there with a lot of potential; and two, if left unchecked, these technologies may develop into services and structures in a way that does not have the public interest as first priority.

Money is a public good, and a very fundamental one. It should be neutral, and it should be easy to use, safe and accessible for everyone. It is a clever solution to our need to make economic value portable. And who should be responsible for it?

I would say central banks. Central banks are by legislation entrusted with offering money that meets criteria such as being a stable store of value and an efficient medium of exchange. They also provide a critical role as lenders of last resort in times of stress.

Central banks are monopolists in the provision of money as a public good. I strongly believe it should be so. But central banks should not be complacent.

This topic is causing a lot of heated debate. Technology is raising new questions about the roles of the state and the private sector. The accelerating digitalisation of our societies is bringing new possibilities. Some are exciting, but some present reasons for concern.

To paraphrase what the French politician George Clemenceau said about war and generals, money is too important a matter to be left only to central bankers1.

What do I mean? In designing the future financial system, we will have to grapple with many difficult questions on privacy, choice, inclusion, stability, innovation and geopolitics, to name a few. All of these involve complex public policy choices and more players in the official sector having to work together.

I will not pretend to know the answers. But I am sure that we need to have this debate to reach some deliberate answers. As the ultimate trustees of the monetary system, central banks and other public authorities have the obligation to investigate and explore what the money of the future will look like.

I am also convinced that the current infrastructures in the financial system need to be upgraded to handle new kinds of demand. Public policy objectives such as protecting the singleness of money, financial inclusion, efficiency, stability and resilience need to be met.

That said, I acknowledge the fact that different countries approach this very differently. The starting point and pace of transition vary, and ambitions vary. Some countries trust the private sector to deliver greatly, while others have different approaches.

Before I get to the CBDCs, let me say a few words about cash. The role that cash plays in our societies is also being disrupted by technology, both from incumbents and new players.

I believe cash should continue to exist and people should have the option to use it if they want. But coming from Sweden, one of the most cashless societies in the world, I see the writing on the wall: cash usage is going down, and the network effects go against it.

Technology is raising new questions about the roles of the state and the private sector. The accelerating digitalisation of our societies is bringing new possibilities. Some are exciting, but some present reasons for concern

The scenario of a cashless society is claimed by some to be a conspiracy led by banks and credit card companies. I think the reality is more boring: we are seeing a behavioural shift towards digitalisation and dematerialisation, which we also see in the wider financial system.

Of course, it’s not the same in every country. And there are many social, economic and development dynamics around it. But when it comes to cash usage, many countries observe the same trend2.

So, policymakers need to think carefully about what they want to do about it. Because this is one of those situations in which a lot of work is required to reach a structure that reflects societal preferences. Ensuring access to and protecting cash usage is a policy decision and requires specific actions. In our rapid evolution into a more digital society, this just doesn’t happen by itself.

And this brings me to CBDCs. CBDC refers to money issued in digital form by the central bank for use amongst either financial institutions only (wholesale) or by the public for households and businesses, what we call a retail CBDC.

Let’s first look into retail CBDCs in a domestic context. Then I will broaden the focus to discuss concepts of wholesale CBDCs and what that can imply in an international perspective. There is a lot of hype and heat around this, both positive and negative. So, allow me to take a minute to discuss some common statements.

One thing we hear a lot is that ‘retail CBDC is a solution looking for a problem’. Why bother in the first place? Things are just fine. I hear that some in the financial industry are making just that argument.

Imagine for a second if a pharmaceutical company were to say, ‘That’s it, no more research. We don’t need new drugs, the ones we have are enough. And if we haven’t found the cure to certain diseases yet, we’ll probably have to live with that.’ Or imagine car manufacturers saying, ‘That’s it, no more safety improvements!’

First, things are not generally well. Payment services are often opaque, slow and expensive.

Second, innovation usually takes us to new places and opens up possibilities that were not there until a new technological breakthrough has happened.

Let me again resort to history and provide an example. In 1989, engineers at Swedish phone company Ericsson were trying to develop wireless headsets. They invented Bluetooth.

They were not trying to stream wirelessly from a tablet to a TV and have fancy wireless speakers around the house; they were not thinking about wearables, power meters for bikes or the internet of things. All these things became possible after the basic technology was developed. Someone at the time might have thought, ‘What’s the problem with wires?’, and Bluetooth would never have been invented.

Similarly, if we dismiss CBDCs as a structure and a service because they don’t address immediate problems, we might be forgoing opportunities to improve that precious public good, money. We would miss opportunities to provide better, safer and cheaper services to people.

A second accusation often hurled at CBDCs is that they will be a threat to privacy and an instrument for social control.

Technology can be used for good or misused. This is nothing new. Many people are rightly worried about how much privacy we are losing today because of technology, and how much of our lives is already monitored through our phones. That sense of vulnerability certainly influences the debate about privacy and financial innovation.

But let’s take a step back and remind ourselves that the privacy we have has not come about by chance.

Our banks know absolutely everything we spend, where and how. This information is protected by robust legal frameworks in most countries. So, these mechanisms can and should be preserved if and when countries decide to launch a retail CBDC.

The BIS Innovation Hub, which I lead, is working on several aspects of how CBDCs can protect privacy. One ongoing experimentation, named Polaris, looks into the best design options for offline use. We have published the conclusions of another project, called Tourbillon, which proposes new privacy solutions for retail CBDCs.

Let me also point out that the monetary system offers alternatives. And having choices enhances welfare. A retail CBDC should not be something that is forced on individuals. Those who wish to stick to cash or those who are happy with their cards should have these choices.

Let me also state for the record, once again, that central banks have no commercial interest in personal data – unlike the private sector. Privacy is a social and legal construct, which correlates with the level of development and the strength of democratic institutions in each country.

As BIS General Manager Agustín Carstens reminded us in a recent speech, the laws in most countries establish strong privacy protections but also limits to that privacy. A practical example are the existing safeguards for using cash in the formal economy. If I tried to buy a house with cash, I should expect significant scrutiny.

A third statement I wish to discuss is the supposed risk that retail CBDCs could represent to financial stability: how they could facilitate bank runs and disintermediate the financial system.

In terms of bank runs, the train has left the station. We are already living in a world where digital runs can happen. Could a CBDC make the problem even worse? Well, not necessarily: with the right provisions in place, CBDCs can be neutral in that regard3.

And in terms of the financial system, what we call the two-tier system has worked well: central banks provide money as a public good and neutral platform. The private sector manages customers, innovates and creates new services, while playing their part in allocating credit to the economy.

So, now that I have discussed some statements and hopefully dispelled some misperceptions, let me leave the topic of retail CBDC and take us to money and payments on the global stage.

Let’s look at the problems. As I already mentioned, crossborder payments have a lot of room for improvement. They can be faster, cheaper and more transparent. But how?

While I believe there is a role for retail CBDC in crossborder payments, it is not an immediate use case. We are still far away from a future where domestically issued retail CBDCs are used in a crossborder context.

But we have other alternatives. Joseph Schumpeter defined innovation as both creating new things and improving the existing ones.

Connecting fast payment systems is one of these areas of improvement. The Innovation Hub is currently working on Project Nexus, which has the potential to realise a platform for interconnecting national fast payment systems. There are 64 of those around the world. Trying to interconnect them individually would generate a maze of over 1,700 bilateral connections.

Project Nexus proposes a single hub for any country to plug their system into, by adopting certain technical and governance requirements – similar to how internet protocols work. Five countries in Asia – Indonesia, Malaysia, the Philippines, Singapore and Thailand – are developing the Nexus platform to integrate their systems.

If they succeed, a market of over 500 million people will be able to send payments as easily as they send a text message. Just think how convenient that would be for sending remittances.

Coming back to new things: as opposed to retail, which would be used by consumers similarly to cash, wholesale CBDCs are more advanced in paving the way for crossborder payments4. Wholesale CBDCs can be described as central bank money offered as a settlement vehicle for financial institutions, but not available to individuals.

They would serve a similar role to reserves in the current system, but with added functionalities that can alleviate many frictions we see today.

Central banks around the world are actively working on solutions that would include the use of wholesale CBDCs5.

Can wholesale CBDCs be a game-changer for crossborder payments? Reviewing the BIS Innovation Hub project portfolio – Jura, Dunbar and mBridge – my answer is yes. Based on our findings, benefits from issuing a wholesale CBDC could include operational transparency, faster settlement, less risk. In other words: faster, cheaper, simpler crossborder payments.

The opportunities of wholesale CBDCs do not stop there. Together with tokenised deposits and securities, they can facilitate a future ecosystem with less frictions and more efficiency6.

If in the future financial institutions and market infrastructures move towards more tokenised securities and that becomes systemic, then we will need a system built on the trust of central bank money in the form of wholesale CBDC. This can be used as a vehicle for settlement.

Our latest Annual Economic Report laid out a vision for a new kind of financial market infrastructure that would build on tokenised assets–which we have termed a ‘unified ledger’. It would be a common platform bringing together central bank money as the settlement asset, tokenised deposits and tokenised assets.

It would allow these various components to work together seamlessly, while remaining grounded in the foundation of trust provided by the central bank and its capacity to knit together key elements of the financial system.

That is the vision. A great deal of work is going into turning it into reality. The BIS Innovation Hub is currently exploring a project that will experiment further with this concept.

Tokenisation also opens up the possibility of encoding policy and regulatory requirements into a common protocol for crossborder use cases, for example related to anti-money laundering and know-your-customer procedures – which we are now exploring with Project Mandala.

For those of you who think this all sounds like science fiction, blue-sky stuff, let me say that things are happening now.

We will continue to test the usefulness of tokenisation in a new project: we will work together with the World Bank and the Swiss National Bank to simplify the process for making development money available for emerging and developing economies through international financial institutions and we are collaborating with additional institutions, such as the IMF, to explore other potential use cases.

So much progress has been made in the wholesale CBDC space. But there is still much that we need to learn. Technology needs to be developed. Even more important, legal and governance structures need to be put in place.

For those of us who believe that the fiat money system is the best version of money for our societies, we need to explore the subject further. Different countries will make sovereign choices, and their views can also vary over time.

However, while issuing a CBDC is definitely a matter for each country to decide, crossborder integration needs to be in the picture. How then can central banks reconcile the domestic and international perspectives?

The answer depends on the appetite for common standards. Various existing standards are relevant for CBDCs. Let me present three broad categories.

  • First, legal and regulatory standards already exist. These are the Principles for Financial Market Infrastructures, and the multiple recommendations on financial integrity developed by groups such as the Basel Committee on Banking Supervision and the Financial Action Task Force.
  • A second category relates to payments-specific technology and operational standards such as message formats and communication protocols. For the non-CBDC systems we see today, technical interoperability is promoted through various sets of common standards.
  • Finally, there are cross-cutting technology standards with general application beyond just digital currencies. Take, for example, technical specifications related to security or identity7.These can help enable the development of accessible CBDC platforms.

Together these standards can play a critical role in supporting the security and interoperability of CBDCs. They can facilitate trust and the protection of the public interest above all.

However, questions remain. Do these standards need to be implemented early on or else they would be difficult to change later? To what extent do they need to be adapted to ensure they can operate with non-CBDC systems? These questions are already being addressed at different levels by the global community.

Given their historical roles and current mandates, central banks will need to make sure money continues to work and meets society’s broad needs.

While the purpose is clear, the plan is flexible. There is no one solution to rule them all. Different countries have different homework to do. But many issues rhyme, and collaboration is useful. This is one of the core missions of the BIS Innovation Hub: foster collaboration across central banks and between those and other players, like commercial banks and technology companies.

I said in the beginning that I like history. Schumpeter also defined history somewhat negatively as “a record of ‘effects’ the vast majority of which nobody intended to produce.”

Technology will not slow down for anyone, and digitalisation affects everyone. We should not end up in a position of just having to live with the effects. It is our collective job to make sure technology serves economically meaningful activities.


1. “War is too important a matter to be left to the military.”

2. See Digital payments make gains but cash remains (

3. Read more about in Central bank digital currencies: financial stability implications.

4. BIS-IMF-World Bank central bank conference: Paving the way for cross-border CBDC payments.

5. The most recent examples were the announcements last month by the Bank of Korea, to which the BIS is providing advice, and by the Swiss National Bank, building on Project Helvetia, developed in partnership with the BIS Innovation Hub.

6. Read more about trade finance use cases in the BIS’s 2023 Annual Economic Report: Blueprint for the future monetary system: improving the old, enabling the new.

7. For example, the NIST cyber security framework, or the Digital Identification for Financial Services standards developed by the International Telecommunications Union.

This article is based on a keynote speech by at the ‘Exploring central bank digital currency: Evaluating challenges & developing international standards’ conference, 28 November 2023, Washington DC.

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