Sovereign digital currencies: Reshaping the design of money and payments systems

This paper focuses on how technology might reshape payments going forward. It considers the policy issues and choices associated with crypto-currencies, stablecoins and sovereign digital currencies and emphasises that there is no single model for sovereign digital currency design. While Bitcoin and its progenies could be safely ignored by regulators, Facebook’s proposal for Libra, a global stablecoin, brought an immediate and potent response from regulators globally. Any proposal by the private sector to move into the creation of currency — the traditional preserve of sovereigns — was always likely to trigger such a regulatory response, as well as the launch of sovereign digital currencies by other major central banks. While China has moved first, dozens of other countries are now investigating their own central bank digital currencies or other forms of sovereign digital currency. This paper argues that central banks should first focus not on rolling out novel new forms of sovereign digital currencies, but rather on transforming their payment systems. In time, domestic money and payment systems are expected to evolve so that central banks cooperate with (new and old) private entities to launch digital currencies that better underpin monetary and payment systems at the domestic, regional and international levels.