Money is about to undergo fundamental changes in the way it is created and used, potentially unleashing a dramatic reordering of the financial system. While volatility has shaken cryptocurrency markets over the past year and caused a string of failures, many parts of the digital asset ecosystem continue to advance largely unaffected by the turmoil, as we explored in an earlier paper. These include the areas with the greatest long-term potential to transform finance, including the tokenization of financial assets and deposits and the development of central bank digital currencies (CBDCs) by most of the world’s largest economies. The rise of digital assets and distributed ledger technology (DLT) continues to have the potential to upend the competitive landscape, creating new, efficient, nimble competitors, but also offering incumbents a potential new lease on life. Executives and policymakers need to stay focused on the opportunities and risks associated with digital assets.

The future of digital assets as a whole depends heavily on the future of digital money, as payments power the financial system.  However, digital money could evolve in quite different ways; for example, there are different forms of digital money that could form the basis of new approaches, spanning CBDCs, tokenized deposits and different types of stablecoins. Executives and policymakers must think in terms of multiple scenarios rather than relying on a single prediction. These approaches will transform business models as they favor different types of issuers and their adoption will reshape liquidity, market-making, and risk management, which could impact the broader financial system considerably.

To help industry executives and policymakers frame their thinking, this report presents four paradigms based on the issuers of money, the technology they choose, and the use cases they target. Traditional financial institutions could successfully evolve or be challenged by the rise of digital intermediaries.  Alternatively, universal networks could transform financial markets and business models, or sovereigns could expand their control of money and change the role for the private sector and its business models.

In a world of significantly higher interest rates, the economic value generated from facilitating payments could be bigger and even more contested. Establishing valuable commercial propositions will be crucial to scaling different forms of digital money. Their viability, in turn, will depend on the policy landscape, technological innovations, and the infrastructure design choices that money issuers make. Each factor will play a role in determining the winners.

Policymakers and senior leaders in the financial industry, both incumbents and disruptors, should consider a range of plausible future scenarios, evaluate their potential impact, plan responses for the most likely developments, and consider how to bring about the most desirable outcomes. This process may play out quite differently across cross-border payments, asset settlement, and retail domestic payments.  We will follow up in coming months with papers that focus on these specific digital money use cases.