The digitalisation of money is not merely a change in payment interfaces. It is a redesign of monetary liabilities, settlement infrastructure, and the institutional architecture that connects central banks, commercial banks, payment providers, firms, and households.
Three forms of digital money are increasingly interacting: retail central bank digital currencies (CBDCs), wholesale central bank money or tokenised reserves, and privately issued digital money, especially stablecoins. Their coexistence could improve cross-border payments, trade finance, liquidity management, and financial-market settlement. At the same time, it could alter bank funding, accelerate liquidity runs, reinforce currency substitution, and create new forms of operational and cyber risk.
The decisive variable is therefore not technology alone. It is institutional design: the legal, prudential, technical, and governance framework through which digital money is issued, redeemed, settled, supervised, and made interoperable.
1. From Digital Payments to Programmable Monetary Infrastructure
The current debate is often framed as a competition between “digital payments”, CBDCs, cryptoassets, and stablecoins. That framing is incomplete.
The deeper issue is the redesign of the monetary system’s underlying plumbing: the infrastructure that records claims, transfers value, settles obligations, manages liquidity, verifies compliance, and preserves trust in money.
A modern digital monetary system may include:
- Retail CBDCs: central bank liabilities accessible to households and firms.
- Wholesale CBDCs or tokenised central bank reserves: central bank money used by regulated financial institutions for settlement.
- Tokenised commercial bank deposits: regulated bank liabilities represented on programmable infrastructure.
- Stablecoins: privately issued digital claims designed to maintain a stable value against a reference asset, usually an official currency.
- Tokenised financial assets: bonds, securities, collateral, and other claims that can be transferred and settled through programmable systems.
The Bank for International Settlements has emphasized that tokenisation could integrate messaging, reconciliation, and asset transfer into a single process. Its proposed “unified ledger” model combines tokenised central bank reserves, commercial bank money, and financial assets while preserving the two-tier monetary system in which central banks provide final settlement and commercial banks intermediate credit. A unified ledger does not necessarily require distributed ledger technology; it can also operate through other programmable financial-market infrastructures. (Bank of International Payments)
The original document correctly identifies that this transformation involves much more than faster payments. It concerns monetary sovereignty, bank intermediation, capital-market infrastructure, international liquidity, and the distribution of economic power.
2. Current Institutional Landscape
CBDC development remains widespread, although implementation is uneven and the distinction between experimentation, pilot deployment, and full public availability is essential.
The BIS reported that 85 of 93 surveyed central banks were exploring retail CBDCs, wholesale CBDCs, or both in 2024. Wholesale work was, in aggregate, more advanced than retail projects. The principal motivations include preserving access to central bank money, supporting payment-system resilience, improving cross-border payments, and responding to tokenisation and stablecoin developments. (Bank of International Payments)
Retail CBDCs are already live in a small number of jurisdictions, while major economies continue to rely primarily on pilots, design phases, or legislative preparation. The European Central Bank, for example, is preparing for a possible digital euro issuance in 2029, conditional on the adoption of the relevant EU legislation. A pilot and initial transactions could begin in the second half of 2027 under that timeline. (European Central Bank)
Wholesale innovation has advanced more rapidly. Project mBridge reached minimum viable product stage in 2024, testing a multi-CBDC platform for instant cross-border payments and settlement among participating central banks and commercial banks. (Bank of International Payments)
Project Agorá represents a broader public-private approach. In May 2026, the BIS reported that its prototype had demonstrated atomic, multi-currency settlement of wholesale cross-border payments through tokenised commercial bank deposits and tokenised central bank reserves on a shared programmable platform. The project is expected to continue toward testing involving real-value transactions. (Bank of International Payments)
3. Stablecoins: Private Digital Money and the Digital Dollar
Stablecoins are privately issued digital assets designed to maintain a stable value relative to an official currency or another reference asset.
They differ from bank deposits in important ways. Stablecoins are generally issued on digital-token infrastructures, are backed by specific reserve assets, do not normally fund lending to the general economy, and are not protected by conventional deposit-insurance schemes.
Their significance lies not only in their size, but in their currency composition. According to a 2025 Riksbank staff memo, stablecoins referencing official currencies had an issued value of approximately USD 272 billion in October 2025, with 99% linked to the US dollar. This creates a form of privately issued digital dollar infrastructure with potential relevance for international transfers, crypto markets, decentralised finance, and currency substitution in economies with weaker monetary credibility.
Stablecoins can improve the availability and speed of cross-border transfers, especially where traditional banking services are expensive or inaccessible. However, their expansion raises concerns about reserve quality, redemption rights, governance, operational resilience, legal certainty, anti-money-laundering controls, and monetary sovereignty.
The European Central Bank has warned that large-scale stablecoin adoption could lead to retail deposit outflows from banks, replacing relatively stable retail deposits with more volatile wholesale funding. The effect could become more severe in the event of a stablecoin run, when issuers may need to liquidate reserve assets or withdraw deposits quickly. (European Central Bank)
The Financial Stability Board has also identified significant gaps and inconsistencies in the implementation of global cryptoasset and stablecoin regulation. Uneven national regulation creates opportunities for regulatory arbitrage and complicates cross-border supervision. (Financial Stability Board)
4. A Dynamic Macro-Financial Framework
A rigorous analysis requires treating CBDCs, bank deposits, and stablecoins as competing forms of liquidity.
Let household liquid wealth be represented as:
Lₜ = Dₜ + Cₜ + Sₜ
Where:
Dₜ = commercial bank deposits
Cₜ = central bank digital currency holdings
Sₜ = stablecoin holdings
The household allocates liquidity across these instruments according to their effective return, convenience, risk, regulatory treatment, settlement finality, privacy characteristics, and conversion costs.
A simplified adjusted-return condition can be expressed as:
rⱼ* = rⱼ − ρⱼ − κⱼ + υⱼ
Where:
rⱼ = nominal return
ρⱼ = perceived credit, redemption, or operational risk
κⱼ = transaction and conversion friction
υⱼ = liquidity and convenience value
A retail CBDC that is highly liquid, universally accessible, interest-bearing, and unlimited could become a close substitute for commercial bank deposits. This would affect the liability structure of banks.
A simplified bank balance sheet can be represented as:
Loans + Securities + Reserves = Deposits + Wholesale Funding + Equity
If households move funds rapidly from deposits into CBDC, banks may need to replace lost deposits through wholesale funding, asset sales, central bank liquidity, or reduced lending. The macroeconomic impact would depend on the scale of substitution, CBDC design, deposit insurance, access to central bank liquidity, and the ability of banks to preserve credit creation.
This is why central banks often consider safeguards such as holding limits, tiered remuneration, or intermediary-based distribution models. These mechanisms are intended to preserve the two-tier system rather than allow public digital money to displace bank intermediation abruptly. The BIS has highlighted such design measures as relevant to managing CBDC-related financial-stability risks. (Bank of International Payments)
5. Digital Runs and Financial Stability
Digital money can lower the operational cost of moving funds during periods of stress.
In the classic Diamond-Dybvig framework, bank runs arise when depositors believe others will withdraw first. Digitalisation can intensify that coordination problem because transfers can occur instantly, remotely, and continuously.
A digital run may involve:
- Deposits moving into CBDC.
- Deposits moving into stablecoins.
- Stablecoin redemptions into bank money or central bank money.
- Cross-border conversion into foreign currency.
- Asset sales to satisfy redemptions or liquidity requirements.
The risk does not mean that every CBDC or stablecoin system will create runs. It means that system design must recognise how frictionless conversion can alter the speed and scale of liquidity shocks.
Stablecoin arrangements create an additional risk when reserve assets are invested in marketable securities. Large-scale redemption requests may require rapid asset sales, creating potential fire-sale dynamics and transmitting stress to short-term funding markets.
The policy implication is that monetary policy, payment-system design, prudential supervision, liquidity regulation, and cyber resilience must be treated as one integrated macro-financial system.
6. The Cross-Border Payments Problem
International payments remain burdened by structural frictions.
A typical cross-border payment may involve:
- Payment messaging.
- Correspondent banking relationships.
- Multiple nostro and vostro accounts.
- Foreign-exchange conversion.
- Compliance screening.
- Sequential updating of balances.
- Liquidity prefunding.
- Delays between payment instruction and final settlement.
These processes increase cost, reduce transparency, create operational risk, and immobilize liquidity.
Project Agorá identifies the same structural weaknesses: cross-border payments remain slow, costly, opaque, and reliant on complex sequential processes that silo liquidity and complicate treasury management. (Bank of International Payments)
Remittances demonstrate the social significance of these frictions. The World Bank reported that the global average cost of sending remittances was 6.36% of the amount transferred in the third quarter of 2025, still well above the UN Sustainable Development Goal target of less than 3%. (remittanceprices.worldbank.org)
A simple measure of direct remittance savings is:
Savings = Remittance Flows × Reduction in Total Transaction Cost
A reduction in commissions, exchange-rate spreads, settlement delays, and working-capital requirements could increase disposable income in recipient households and improve the efficiency of small-business trade. However, these benefits depend on competition, interoperability, consumer protection, and access to reliable cash-in and cash-out channels.
7. Three Plausible Architectures for International Settlement
Architecture A: Tokenised Deposits and Tokenised Central Bank Reserves
This is the architecture most closely aligned with the BIS vision.
Commercial banks issue tokenised deposits for customer payments, while tokenised central bank reserves provide final settlement among regulated institutions. Payments, foreign exchange, compliance checks, collateral management, and settlement can be coordinated on a programmable platform.
The main advantage is that it preserves the existing two-tier monetary structure. Commercial banks remain responsible for customer relationships and credit intermediation, while central bank money remains the ultimate settlement asset.
Project Agorá has demonstrated the technical possibility of atomic multi-currency settlement within this model. (Bank of International Payments)
Architecture B: Multi-CBDC Platforms
Multi-CBDC platforms create direct settlement corridors between participating central banks and regulated commercial institutions.
Their potential benefits include:
- Faster cross-border settlement.
- Reduced prefunding.
- Lower operational complexity.
- More transparent liquidity management.
- Better integration between foreign exchange and payment settlement.
Their main risk is fragmentation. If multiple regional platforms develop without common standards, global payments may become more efficient within blocs but less interoperable across them.
Project mBridge illustrates this model. It reached minimum viable product stage in 2024, but it should still be understood as an evolving infrastructure experiment rather than a universal global settlement system. (Bank of International Payments)
Architecture C: Stablecoins as Private Global Payment Rails
Stablecoins already function as an international transfer mechanism in some markets.
Their advantages include 24-hour availability, programmability, potential speed, and integration with digital platforms. Their weaknesses concern governance, reserve management, redemption reliability, legal claims, fragmentation of standards, and possible digital dollarisation.
This architecture could be useful for specialised applications, but it is unlikely to replace central-bank settlement in systemically important financial markets unless it becomes subject to robust regulatory, prudential, and supervisory frameworks.
8. Trade, Reserves, and International Monetary Power
Digital settlement could reduce “iceberg costs” in international trade: the hidden costs associated with payment delays, currency conversion, compliance friction, documentation, collateral, and working capital.
In a standard gravity model, bilateral trade can be represented as:
Xᵢⱼ = A × (Yᵢ × Yⱼ) / τᵢⱼᶿ
Where:
Xᵢⱼ = bilateral trade
Yᵢ and Yⱼ = economic size of trading partners
τᵢⱼ = bilateral trade and transaction costs
θ = trade-cost elasticity
If payment and settlement infrastructure lowers transaction costs, then trade volumes may rise, especially for SMEs, service exporters, digital commerce, and firms with high working-capital needs.
The effect will not be uniform. It is likely to be greatest in corridors where current payment costs, exchange-rate spreads, compliance delays, and capital immobilisation are highest.
Digital money may also affect international reserve demand. If international settlement becomes more efficient and predictable, countries and banks may need smaller precautionary liquidity buffers. However, this outcome depends on trust in institutions, cross-border legal enforceability, access to emergency liquidity, and the resilience of payment infrastructure.
The dollar remains central to this debate. Dollar-linked stablecoins extend the dollar’s network effects into digital payment infrastructure. This may strengthen the international role of the dollar, especially where users seek a stable unit of account or access to global liquidity. At the same time, it can amplify currency substitution and reduce monetary-policy autonomy in vulnerable economies.
9. Artificial Intelligence and Programmable Payments
Artificial intelligence may become a major efficiency layer in digital monetary infrastructure.
Its potential applications include:
- Anti-money-laundering and counter-terrorist-financing analysis.
- Fraud detection through graph analytics.
- Intraday liquidity forecasting.
- Collateral optimisation.
- Cybersecurity monitoring.
- Smart-contract verification.
- Automated trade-finance workflows.
- Treasury management and conditional payments.
AI can reduce false positives in compliance systems, identify suspicious transaction networks, and improve the allocation of liquidity across payment queues.
However, AI also introduces new operational risks:
- Model error.
- Biased or opaque decision-making.
- Adversarial attacks.
- Data poisoning.
- Excessive automation.
- Dependence on external data providers or oracles.
- Unauthorised agent-initiated payments.
Agentic payments require strong safeguards: explicit mandates, transaction limits, segregation of duties, approval workflows, continuous monitoring, audit logs, emergency suspension mechanisms, and human review for high-risk actions.
Model governance should therefore become part of operational resilience and macroprudential oversight.
10. Institutional Design Principles
A durable international digital-money architecture should include the following principles.
Preserve the Two-Tier Monetary System
Central banks should preserve their role as providers of trusted final settlement, while regulated banks and payment institutions continue to perform credit intermediation, customer service, compliance, and innovation.
Design Retail CBDCs Prudently
Retail CBDCs should consider holding limits, tiered remuneration, intermediary distribution, privacy protections, offline capability where appropriate, and safeguards against sudden deposit displacement.
Require Interoperability
Digital-payment systems should connect across currencies, platforms, legal regimes, and institutions. Technological islands may improve local efficiency but create global fragmentation.
Regulate Stablecoins by Function and Risk
Stablecoin regulation should address:
- Legal redemption rights.
- Par-value convertibility.
- Reserve composition.
- Liquidity management.
- Independent audits.
- Governance.
- Operational resilience.
- Cybersecurity.
- Consumer protection.
- Anti-money-laundering compliance.
- Cross-border supervisory cooperation.
Protect Data Without Preventing Compliance
A shared platform does not need to mean unrestricted data sharing. Project Agorá has specifically explored how programmable settlement can coexist with privacy, data controls, anti-money-laundering obligations, and settlement-finality rules. (Bank of International Payments)
11. Scenarios for 2026–2035
Scenario 1: Coordinated Convergence
Central banks, commercial banks, payment networks, and regulators develop interoperable standards for tokenised deposits, wholesale central bank money, and digital assets.
Cross-border payments become faster, more transparent, and more programmable while preserving financial stability and legal accountability.
Scenario 2: Geoeconomic Fragmentation
Different currency blocs develop incompatible CBDC corridors, private stablecoin networks, and national settlement platforms.
Local systems may become efficient, but international interoperability weakens. Compliance friction, currency competition, and regulatory conflict increase.
Scenario 3: Pragmatic Hybridisation
Retail CBDCs remain limited or targeted. Wholesale tokenisation expands in cross-border settlement and capital markets. Stablecoins become regulated niche instruments rather than the foundation of the monetary system.
This hybrid outcome currently appears consistent with the institutional evidence: central banks are advancing wholesale projects, stablecoins continue to grow, and regulators are building more formal frameworks rather than allowing unrestricted private monetary expansion. (Bank of International Payments)
Conclusion
CBDCs, tokenised deposits, stablecoins, and programmable settlement systems are changing the structure of the international monetary system.
Their impact will depend on how they affect:
- Substitution between deposits, CBDCs, and stablecoins.
- The speed of liquidity shocks.
- Bank funding and credit creation.
- Cross-border settlement costs.
- Demand for reserve assets.
- Currency substitution.
- Operational resilience.
- Monetary sovereignty.
The main challenge is not whether money becomes digital. It already is.
The challenge is whether digital money becomes interoperable, legally accountable, prudentially sound, technologically resilient, and institutionally legitimate.
A robust future architecture is likely to be hybrid: carefully designed retail CBDCs, tokenised wholesale settlement, regulated tokenised deposits, tightly supervised stablecoins, and AI-enabled compliance and risk management.
The decisive variable is not innovation in isolation. It is the institutional architecture that determines whether innovation improves efficiency without sacrificing trust, stability, and the public role of money.