A model of monetary singleness

Rapid innovation in digital payments and the advent of new forms of privately issued digital money have increased interest in the concept of singleness of money. This paper provides an analytical framework for studying the singleness of money consisting of a three-period banking model where banks choose both the unit of account of their debt and whether it can be used as a medium of exchange. The paper suggests that small deviations from singleness may still be consistent with the efficient allocation, consistent with the fact that small deviations from par already arise today (for example, ATM withdrawal fees). However, inefficient equilibria are more likely to occur if the newly introduced forms of digital money are issued by private entities with distinct business models from incumbent financial institutions. The model also highlights the stabilising roles of both cash and central bank reserves in promoting the singleness of money. Reserves ensure issuers share a consistent asset base, while cash provides a backstop by enabling interoperability through central bank money.