Key takeaways

• Tokenisation represents a transformative innovation to both improve the old and enable the new. It paves the way for new arrangements in cross-border payments, securities markets and beyond.
• Tokenised platforms with central bank reserves, commercial bank money and government bonds at the centre can lay the groundwork for the next-generation monetary and financial system.
• Stablecoins offer some promise on tokenisation but fall short of requirements to be the mainstay of the monetary system when set against the three key tests of singleness, elasticity and integrity.

Introduction

The story of the monetary system, and its role in the economy, is one of continuous evolution. Throughout history, technological progress in the monetary system has gone hand in hand with major leaps in economic activity. The innovation of money recorded as book entries managed by trusted intermediaries gave rise to new financial instruments that helped trade and commerce flourish. Paper ledgers gave way to digital ones, bringing profound changes to the economy and society.

The past several years have seen a wave of digital innovation that opens up unprecedented possibilities for money and finance. This chapter discusses how central banks can light the path to the next generation of the monetary and financial system. This is a system designed to expand the quality, scope and accessibility of financial services by leveraging innovative technologies backed by sound regulation, while preserving the solid foundation of the existing system: central bank reserves as a trusted final settlement asset, supporting private financial sector innovation.

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