Innovations and the layering of money and payments

This paper analyses the role of layering in the architecture of money and payment systems and how recent technological innovations affect it. Layering in payments, whereby payment ledgers are hierarchical to each other, and senior ledgers allow for interoperability between junior ledgers, has historically emerged from efficiency, risk management, and governance considerations. The paper develops a framework to classify ledger hierarchies and types of payment ledgers and uses it to assess innovations including central bank digital currencies, instant payment systems, public blockchains, tokenized multi-asset platforms, expanded access of non-bank payment service providers to central bank accounts, and stablecoins. The analysis shows that many innovations do not eliminate layering but instead reorganize it, often preserving the fundamental tiered structure in which central bank money anchors the monetary system. Innovations should normally improve payment efficiency but also introduce new risks and policy challenges that must be addressed, implying the need for regulatory modernization and an evolving role for central banks in shaping payment architectures and safeguarding the singleness of money.