What do we want from a monetary system?
The monetary system is the set of institutions and arrangements that supports
monetary exchange. It consists of money and payment systems.2
What is required
from such a system to serve society? While there is no canonical list of necessary
features, a number of high-level goals stand out (Table 1, first column).
To ensure the safety and stability of the system, money needs to fulfil three
functions: as a store of value, a unit of account and a medium of exchange. Where
the monetary system relies on key nodes or entities (whether public or private),
they need to be accountable, through specific mandates for public authorities and
through proper regulation and supervision for private entities.
The monetary
system should be efficient, enabling reliable, fast payments to support economic
transactions both at scale and also at low cost. Access to basic payments services at
affordable prices, in particular transaction accounts, should be universal to spread
the benefits of economic activity, promoting financial inclusion. Not least, the
system must protect privacy as a fundamental right, and provide user control over financial data. The integrity of the system must be protected, by guarding against
illicit activity such as money laundering, financing of terrorism and fraud.
The monetary system is not just a snapshot of the economy as it exists today; it
needs to evolve with structural changes in the economy and society. For this reason,
the means of reaching the high-level goals set out in Table 1 should evolve with the
monetary system itself and the technology underpinning it. In short, the monetary
system must be adaptable: it should anticipate future developments and user
needs. It must be attuned to technological developments and respond to the
changing demands of households and businesses, and it must foster competition
and innovation. To better serve an increasingly interconnected world, the monetary system also needs to be open, interoperable and flexible, both domestically and
across borders.
Just as economic transactions transcend borders, the monetary
system will need to serve a seamless web of interconnected entities, rather than
sparsely connected islands of activity.
Today’s monetary system has come some way towards these high-level goals,
but there is still some way to go. Changes in users’ needs and the concomitant
shifts in technology have pointed to areas for improvement (Table 1, second
column). Current payment services can sometimes be cumbersome and costly to
use, in part reflecting a lack of competition. Cross-border payments are particularly
expensive, opaque and slow: they usually involve one or more correspondent banks
to settle a transaction, using ledgers built on different technologies.3
In addition, a
large share of adults, especially in emerging market and developing economies, still
have no access to digital payment options. But a globalised world that features an
ever-growing digital economy requires a monetary system that allows everyone to
make financial transactions domestically and globally in a safe, sound and efficient
way. Catering to these changes in the demands that society places in the monetary
system calls for advances in technology and institutional arrangements.
