Money 2.0: Stablecoins, Tokenised Deposits, and CBDCs Battle for Supremacy

The way we think about money is changing, and not just because of Bitcoin's price movements. The real story is about the technologies created around crypto becoming the foundations of a new financial system.

Central banks create central bank money, commercial banks create most of the money we use, and card networks move instructions between buyers and sellers. But what happens when machines rather than people make decisions? A battle is developing over who gets to create that money, control the infrastructure, and decide which form of money is used.

Stablecoins have an advantage because they already exist at scale. They represent a dollar, euro, or pound as a token on a blockchain and allow it to move around digital networks. This changes how money moves, making it possible for direct transactions between digital wallets without the need for banks.

Commercial banks have another idea: why not take existing commercial bank money and make it programmable? Tokenised deposits are essentially conventional commercial bank money represented in a form that can operate on programmable digital infrastructure. This could retain many of the characteristics that make bank money useful, including its relationship with lending, liquidity management, regulation, and deposit protection.

However, tokenised deposits risk recreating fragmentation by allowing every bank to create its own tokens on its own infrastructure. Central banks are watching this development closely, wondering if central bank digital currencies (CBDCs) might be necessary to provide a trusted digital settlement asset connecting banks and regulated institutions.