SUERF-Bocconi lecture - Money of the Future - Brunnermeier-Duffie-Bindseil-Ingves-Valla - 11.5.2026

Welcome to this SWERF Bruegel lecture on money of the future. What will money of the future look like? From the rapid rise of stablecoins to ongoing work on central bank digital currencies, or CBDCs, the foundations of money are evolving quickly, raising fundamental questions for financial systems, for banks, and for policymakers. This high-level webinar will address key policy and analytical questions, including the implications of new forms of money for financial stability and monetary policy, the interaction between stablecoins and CBDCs, the role of central banks in changing monetary landscapes, the impact on banks and financial intermediation, and global perspectives across major jurisdictions. Before we enter into the core of today's discussion, let me thank SWERF fellow Martin Schiessl, advisor at DG Horizontal Line Supervision at the SSM/ECB, for organizing this webinar, for taking the initiative, and for preparing everything. And let me also give a warm welcome to Natasha Vala, dean of the School of Management and Innovation at Sciences Po and a longstanding member of SWERF's Council of Management, who will then introduce our panelists and moderate the discussion. Without further ado, over to you, Martin.

Good afternoon and welcome to this webinar also from my side. In the next few minutes, I'm trying to give a broad overview of our topic today. The starting point, and I think quite an appropriate one, is a quote by John Maynard Keynes: 'The importance of money flows from it being a link between the present and the future.' So money is really the core instrument of a market-based economy. It has two specific functions: as a medium of exchange and payment, and as a store of value. It has a long and, one could say, rich history from Babylonian clay tablets via banknotes to nowadays digital assets. The common concept today is fiat money, so not really convertible to gold but simply a way of representing value. The two main types of money used today are cash, so this is the banknotes which most of us still have in our pockets, issued by the central bank, and bank deposits, private money issued by commercial banks. So if we could go to the next slide to talk a little bit about what is actually digital money. Digital assets are traded, used, and stored digitally. They use a secure technology to make payments and record ownership on a centralized system. This is this distributed ledger approach, and here the most famous one is blockchain. Today we are going to focus on two key types of digital money: central bank digital currency, so this is from the paper banknote in our pocket to a digital banknote issued by the central bank, and the second is the stablecoin. This is a crypto asset issued by typically private non-bank with the value at the moment almost overwhelmingly pegged to the US dollar. Two comments on this: first of all, Bitcoin is not a stablecoin, but it's rather a highly speculative instrument without any fundamental cash flows, so something like an electronic tulip. And then we also have the tokenized deposit. This is sort of a hybrid product. It's a commonly used deposit at the commercial bank, but it is recorded on a blockchain, so sort of bringing the bank deposit to the crypto age. On the next slide, a brief summary of the main features of the two instruments which we are going to discuss today, stablecoin and CBDC. Stablecoin: the issuer is at the moment mostly non-bank, although some banks have also entered this game, but overwhelmingly it's a non-bank. CBDC is publicly issued by the central bank. The use cases for stablecoin are, and of course this is a quickly developing market so I'm speaking about the situation at the moment, are mostly crypto trading and cross-border payment. For the CBDC, the idea is to use it to settle retail payments. Regulation: in the US, it's the Genius Act. In the EU, the somewhat more modestly named MiCA framework. And then for the Euro area for the CBDC, the regulatory framework is still pending and is currently still in the EU Parliament. The current situation is overwhelmingly Tether dominates the stablecoin market with more than 60%. It's domiciled in El Salvador and according to some analyst reports around 25% of its assets are not necessarily high-quality liquid assets. CBDC: many countries have started this, for instance the Euro area as we mentioned, UK, Sweden, and China, whereas in the US this has been put on hold. Key policy questions are how on the topic of stablecoin, how is this going to affect banks? Is it going to lead to disintermediation? What is really the wider use case in addition to crypto trading and cross-border payments, or will stablecoins really take off? Then related to the financial stability perspective, run risks and the interconnectedness with what one could call traditional finance, so old-fashioned banking system. For CBDC, three policy issues are defining the holding limit, so in the Euro area there is currently a discussion about setting it to a value of 3,000. The design: is it online or also offline? And of course also here the usage. So on my last slide I'm trying to outline a few of the topics for today. So first of all, of course, the broader implications of the evolution of money for the financial system and central banks. And here I understand that Stefan has some views and thoughts on this based on his long, distinguished career. Then when we look at the two instruments specifically, stablecoin versus CBDC: can only one really dominate the market? Can they sort of live in parallel? Or actually, as a third bullet point there is also a scenario that tokenized deposits might actually be the winners. So would banks in this market actually really have sort of the last laugh? Then remuneration is a key topic. So the Genius Act directly prohibits direct remuneration, but there are some workarounds and here Uri has done quite extensive work. So we are very interested to hear his views on this. Then as with any other new entity in the financial system, there is always the question of central bank access. So this also applies to stablecoins. Will stablecoins get central bank access? Do all central banks actually need to issue CBDCs? From the other perspective, what is the impact of stablecoins and CBDCs on banks? So, will banks survive or will this sort of be another step at taking away banks' really lunch? Then a more geopolitical dimension, the US versus the EU versus China. So here we see very different approaches. So what is the likely evolution in these three areas? And then the last two points: implications for safe assets. So here of course, given his very long work on this topic with in the US a very high impact, we are very interested to hear from Darrell any views on this. And then last but certainly not least, the broader macro-financial angle. And as Marcus has since the pandemic been working on the concept of resilience, we are very interested to hear also how this concept might apply to the topic of digital money. And with this I would hand over to Natasha to start the panel.

Thank you very much Martin for this very useful introduction that gives us the overview of the topics that we will cover. It's an honor to share such a distinguished panel because every single speaker brings a very strong value to the debate. So we will start today with Marcus Brunnermeier. I mean I feel a bit silly to introduce the speakers, they're all so well known. But Marcus is a professor of economics at Princeton University. He's a SWERF fellow and we're proud of it. He's recognized for his work on macro finance, financial stability, liquidity bubbles, and a very strong provider of useful tools for those who teach economics nowadays. Darrell Duffy, how should I still need to present you? Professor of finance at Stanford University. One of the world leading scholars on financial market infrastructure, repo market, settlement, everything that is very core to what we will discuss today. Bindseil is a former colleague of mine at the ECB with a long, distinguished career at the European Central Bank. He's now honorary professor at Technical University of Berlin and a fellow of SWERF. He's an expert on central bank operations, also payment systems, monetary policy implementation. So CBDC market infrastructure as he says is his bread and butter. And Stefan Ingves is the former governor of the Riksbank, senior fellow at the Swedish House of Finance. So as a very senior central banker he will bring his perspective on payments, CBDC, and also crisis management because he has gone through all those steps. So I will first then give you the floor Marcus for your remarks. Please go ahead.

Thanks a lot Natasha and thanks Martin and for the whole SWERF community for inviting me. I would like to talk about sovereignty and resilience in this context of digital money. And so when you think about sovereignties, there are three types of sovereignties which come to mind. So one is monetary sovereignty, which is the ability of a central bank to influence the macroeconomic outcome, and I will talk more about that. And once you lose the transactions, you shift to a foreign account. So you're digitized, you have digital dollarization, for example, dollarization outside of the Euro area, then you lose your monetary sovereignty. That's one form of sovereignty you might have to consider if you introduce digital money. The second form of sovereignty is digital sovereignty. That's the ability to operate, audit, or even necessarily switch off the rails on which everything is moved, the value is moved. So you might even become dependent or addicted to a digital backbone from some other country, that's like a choke point you might be facing. So if you lose the backbone and if it's a foreign backbone, I think you might lose your digital sovereignty. And then there's the financial sovereignty, that's the ability for domestic households or firms to access credit on domestically governed terms. And if most of the credit is allocated to foreign entities, foreign big tech or other platforms, you might also be limited in sovereignty in a sense. And for the digital money issues, the sovereignty plays an important role. Now if I look a little bit more deeply into monetary sovereignty and its components, and as I mentioned, monetary policy, if you would like to do monetary policy, you want to manage the business cycle. So if the economy is cooling off, you would like to stimulate it, if it's overheating, you would like to slow it down. And in order for the central bank to really be effective to do this, it has to control the unit of account role of money. That's one key, I think the most important part of monetary sovereignty, and you don't want to lose it. Once you dollarize, you might lose this monetary sovereignty. A second one is of course you have also some seigniorage. You get some rents from money creation, to a large extent it goes to the private sector, but to some extent it also goes to the official sector. You're also part of monetary sovereignty. And then they also would like to have the power to exclude some entities from the monetary system. That's also part of your sovereign monetary sovereignty through sanctions or you know, you can just exclude certain players. And finally you also have the power to bail out and provide a lender of last resort facilities to certain players, and it's in your sovereign to decide whom to provide a lender of last resort facility and whom not, and you might also lose the sovereignty on that. So these are this monetary sovereignty, as I mentioned, there of course the digital sovereignty as well, and then there's the financial sovereignty on top of it. And each of these sovereignty concepts is related to resilience, robustness. How resilient is your payment system? How resilient is the digital money system? And or how robust it is? And I would like to contrast resilience with robustness. So by resilience I mean it's you have an underlying system which innovates, and you know, when you face a shock, the amplification is dampened because it's resilient and there's a faster recovery. And it's not a bounce back. It's actually a bounce forward because the underlying system innovates and is adjusting to that. That's when you focus on the resilience approach in order to maintain your unit of account or your digital money system and so forth. You want to be resilient. You might face some setbacks but you can bounce back, but the underlying system is modifying itself and innovates in order that you can bounce back. If you follow a different approach which is the robustness approach, you have a philosophy that it has to hold and has to work most of the time without giving in at all. So resist any change. You maintain the current structure and it's not that you respond to it and adjust and innovate the system such that you bounce back. You try to avoid of course that any setback from the beginning. So it's a much more demanding concept, approach which you probably can solve as well, but it's way, way more demanding than a resilience approach. And it's in a world where radical changes all the time, it might be not a realistic approach. Earlier I've drawn the analogy between the reed which is more resilient, bouncing back and forth and you know, but always coming back essentially, rather than the oak. The oak is just very rigid and is standing there, is not moving around at all. Now if you have the resilience or the robustness approach, typically you have some underinvestment. So if it's done by private entities, private entities will not put enough resources into the resilience itself to make sure that you know, the system even though it faces some setbacks, some cyber attack or whatever it is, that it can actually come back. And that's a call for some public-private partnership in a sense that the public side has to ensure that there's enough resilience in the system. So a private platform, if there's an outage, causes some cascades to other platforms and users and so the whole macroeconomy, the private platform is not internalizing all these externalities. And that's essentially the problem we face if it's poorly privately organized and also for fail circumstances. And this is specifically also for digital private money where the cyber security, you know, might not be fully guaranteed the same way. In order to internalize all the spillover effects and externalities, the fallback capabilities might not be there the same amount and you might also not ensure the interoperability is guaranteed in such a way. Interoperability itself is a very specific thing because if it's very interoperable, it might be competitive efficient to have it very interoperable, but also spillover effects are much more dramatic. And that's also, you know, if you allow for interoperability, you have more spillovers and there might be hence not enough investments in resilience of the system. And in international context, it also applies to cross-border settlement redundancies. Now one architecture, the architectural principles could be a tiered resilience structure where you have different layers, some public layers, some private layers, and then the cash essentially has a deep fallback layer. So the way if you think about cash, essentially is fairly resilient, it's also very robust in a sense that you know, it will actually be operating even if all the digital cyber attacks or whatever happens is falling apart. So cash is always there. So one structure would be that you have a public backbone like India's UPI or Pix in Brazil and so forth, and which is maximally resilient and robust because you know, this if this doesn't work, it's a choke point. It's also from international threat point, it becomes a choke point in a sense and it's a public good. So you organize this as a public fashion, but then the actual money, the digital money is sitting on top of it and this can be much more diverse, more experimental, less individually resilient because you know, you can fall back, the public backbone is still there, might be some alternative there because the backbone is then provided. And similarly what we have in the banking architecture, that the deposit insurance is essentially a public provision of money, of digital money, and the lender of last resort is the official, the public sector. The deposit essentially is a private provision, but deposit insurance and lender of last resort is coming from the public sector. So that's essentially one way to go for that. Now once you introduce these different forms of digital money, but you have a common backbone, you also would like to ensure the uniformity of the currency. You will have potentially many issuers of different stablecoins, CBDC, and other things, but you want to ensure that there's one form of money, so many issuers of money but one form of money. So you have to think about what's, you would like to have programmable money, but if money is very programmable, that then actually becomes different, so it destroys the uniformity of money. And so you want to take into account how programmable should it be, and in what way should it be programmable money itself or should the wallets be programmable just to make sure the money itself becomes more uniform. And so I think the uniformity of money is very, very important because when somebody buys something and some price level is there, you would like to easily compare, do comparison shopping, and if the same price is quoted, it should be the same money to be able to pay with. And you would like to eliminate any exchange rate risk or any denomination risk and any other things which might come out of that. Another reason why, you know, digital money of the official sector might be introduced is to ensure the uniformity of money. So CBDC is insurance of uniformity of money, but it could also on top of it be a catalyst to coordinate banks across nations, in particular in the European Union, to have a more common, homogeneous approach of things. You know, for example, European Payment Initiative and other things might not work so well if the private players have to coordinate and block each other because by blocking each other they benefit from extracting certain rents. And by having a CBDC coming in as a threat point, out of equilibrium threat point, is actually beneficial to have a common point, threat point, in order to get the coordination going and get the whole thing off the ground. So essentially as I mentioned, there's a public option, CBDC, some bad now or some other things, it doesn't need to be a digital currency, but at least you know, the backbone has to be a public option. Then there's regulation coming into thing, and then there's an out of equilibrium threat point on top of it in order to force more coordination across the various private issuers. The way I would like to compare is three levers, so you can move around three levers. So one is how much do you link the payments to the credit, so a payments-credit link. So can it be, when you have a ledger, it can be linked, the payments and the credits can be linked. So in particular if you take a loan, it's on the same ledger, and if you get the payment later on, immediately the payment is diverted to pay off your loan. And this way, you know, defaults can be mitigated, and this way you have much more digital forms of collateral going on in these platform arrangements. Then there's another policy lever where you can say how interoperable you want to make it. The whole thing, that's interoperability regulation. You would like to have interoperability regulation between a private payment system and a government payment system, be it FedNow, CBDC, and so forth. And you also might regulate to what extent different commercial payment systems should be interoperable to each other. So that's the second, interoperability is the second lever. And then the third lever you can choose is the privacy requirements. So you can say I can choose the privacy on the public system, CBDC. How private is the CBDC? Or should it be very well connected to the credit links, then it will be less private. So if you have a so-called what I call smart CBDC which is interlinked with a credit registry, it will be much less private, or you make it very much cash-like, then it becomes very private, but then you can't use it really for the credit arrangement so much. And these are the different, for policy makers, three different levels they can play with. And some recent work, I derived essentially a payment-credit-privacy dilemma which is on a campaign where I show essentially you can have only two out of the three desired features if you really want the perfect credit market. You essentially end up with the perfect payment system and perfect privacy in the form of cash privacy, zero knowledge proof type privacy. You cannot have all three of them together, you can only pick two out of the three. And I don't have the time to really go through it, let me just say the following: if you have a smart CBDC arrangement, then it will be the case that you know, this public sector will create some competition, will make the perfect credit, so best credit provisioning essentially, it improves, you need less collateral, improves credit, and you can also have, because the public sector it also provides some payments, it also improves the payment system. Now, but if you think your CBDC should be much more privacy focused because you would like this perfect privacy, liking cash, and perfect payments, then of course you give up the perfect credit arrangement. So there are a lot of more nuances and you can find many of these different payment systems in this dilemma figured out, and also the competition between two commercial payment systems out there will play out. It could be one commercial platform focusing very much on privacy, the other one not, and this way the privacy platform might undermine the credit provisioning. So there are a lot of opposing interactions across this dilemma. So let me conclude with this slide. I've started out with three sovereignties: monetary, digital, and financial. You see in the dilemma that the financial, the credit comes into play as well. You can have a resilience approach or a robustness approach. In both cases, the private sector will underinvest in resilience and robustness. So you need ideally a public-private partnership and this the backbone to make sure that really the essential things you have to fall back on is always provided by the public sector. And one option is a tiered resilience structure which also ensures some uniform currency. And I concluded then with this payment-credit-privacy dilemma. There's a typo here on the slides. I apologize and thanks a lot for your attention. I'm looking forward to discussion.

Thank you very much Marcus. This payment-credit-privacy dilemma will make us talk later I think. Let me give the floor to Darrell who is here. Yes.

Thank you, Natasha. And thanks also to Ernest and Martin for organizing this. It's a pleasure to be with you all. I want to talk about on-chain finance and how to provide a safe form of money for on-chain finance. Draana, could I have the next slide, please? Yeah. So let me motivate this with the famous example of the failure of Herstatt Bank in 1974 when Herstatt conducted some foreign exchange transactions with a number of international banks and failed in the middle of the day. Those international banks and their customers lost hundreds of millions of dollars. So I'm going to, by the way, since then, there's obviously been great improvements in risk management for settlement of foreign exchange. We have for example CLS Bank which is a method for controlling the risk that one bank will fail to meet its obligations to pay the other. But now we have the advantages of programmable settlement and I want to explain roughly how that works. So in this example, the US bank will pay the EU bank $500 million in exchange for $400 million. I checked this morning, that's actually around €467 million today. Rather than using a lot of complicated and expensive infrastructure, one could have the US bank simply cryptographically sign its $500 million saying that they belong to the EU bank if and only if the EU bank similarly cryptographically signs its €400 million saying they belong to the US bank if the US bank has done the same. So with this, you know, the miracle of cryptography will allow each bank to collect the other's money without any settlement risk. And this has already been tested in Project Jura, which is an agreement between or was an example of testing between the Swiss National Bank and the Bank of France. And for those of you that are insiders, Jura is the mountain range that separates Switzerland and France. And Project Cedar, the New York Fed, and the Monetary Authority of Singapore similarly tested the ability to do cryptographic settlement of large foreign exchange transactions. What I want to emphasize in the following few minutes is that this is an example of wholesale finance. This is not the typical remit of a CBDC or a retail payment system. This describes a setting in which very large financial transactions for government securities trades or foreign exchange trades or perhaps equity market block trades can be conducted. Could I have the next slide please? Thank you Dana. So the minimal elements to do this are basically a state machine on which there's a programmable ledger that records each bank's position. The state of the state at moment t is a record of everyone's positions and all of the agreements that exist on the programmable ledger at that point in time. So to conduct the trade that I just described, the US bank would send a message to the programmable ledger saying pay the EU bank $500 million contingent on the ledger receiving a message from the EU bank. That's analogous. Once the EU bank sends its message instructing the ledger to transfer €400 million, provided the state reflects a message likewise from the US bank, then the ledger will swap the dollars for the euros and both banks will now have access to the currency that they had purchased. Now for this you don't need a blockchain necessarily. You don't even need a distributed ledger necessarily. It could be a centralized ledger, but it needs to be programmable and if it's centralized, it should be conducted by a trusted party like a central bank. So, this could be a central bank ledger, but in practice applications so far have relied on distributed ledgers and typically some kind of a blockchain type of technology, but they need not. I want to emphasize that. Next slide, please. Here's an example of a recent transaction that was conducted on Canton, which is a programmable ledger, not blockchain, and it's highly controlled in terms of permission and privacy. In this case, this was actually done in August 25. This is not a hypothetical. It's an actual trade. The dealer is selling treasury securities which exist in a tokenized form thanks to the Depository Trust Company which is tokenizing, now authorized to tokenize treasuries and equities. The seller will assign the tokenized treasuries on the Canton programmable ledger to the buyer. The buyer will likewise assign a cash settlement instrument, in this case the stablecoin USDC, in payment for the treasuries. And again this is cryptographic assignment. There's no settlement risk because neither buyer nor seller has access to the other asset unless it has assigned its own asset to the other. Could I have the next slide please? So all of these kinds of on-chain finance transactions rely, because of their scale and because of the systemic risk of this type of infrastructure, rely on a very safe and effective liquid form of money. And I'm going to list, this is my last slide, four options that have come forward for conducting these types of transactions. One is for the central bank to tokenize its own reserves or central bank deposits and in that way obviously the money is safe and liquid because it's the unit of account and it's transferable instantly on a central bank ledger. The Swiss National Bank is the only one with a live application that has this feature. The central banks play a very important role in this setting. The principles for financial market infrastructure under CPMI-IOSCO actually stipulate that it's the natural role of the central bank to provide the form of money or to ensure that there is a safe form of money for these types of transactions and this is critical financial market infrastructure. The central bank should take responsibility to either do this or see that it's done. A second option which is also central bank based is to synchronize the programmable ledger with RTGS cash settlement in conventional central bank reserves. This is not a CBDC. Neither of these are CBDCs. This is which I would tend to use that term especially in the United States only for retail applications. This has been tested at the ECB in Project Pontes, at the Bank of England, and at the Swiss National Bank. A second option that SNB has provided. Now the PFMI of CPMI-IOSCO say that it's okay to use private money if it's essentially as safe and liquid as central bank money. An example of that would be a narrow bank that issues tokenized deposits. The word narrow bank means that these tokenized deposits would be backed 100% by central bank deposits. An example of that is Finality and it has up and running this form of tokenized deposits backed by Bank of England sterling settlement account. The last option would be to provide a stablecoin that's backed by assets whose market value is essentially equal to one unit of account. For example, in a note with Don Wilson, we proposed the issuance of government notes that are auctioned with a floating rate that are auctioned daily for one unit of account that has the safety and not quite the liquidity but almost the liquidity of central bank deposits. A second option might be a money market mutual fund that's put on-chain and that invests exclusively in overnight treasury repos which are worth one every day. So it should be relatively safe. I think option four is not as good as any of the other three options because it's one step removed from central bank money. Option three is about a half step removed from central bank money and options one and two are central bank money. I want to emphasize that we are experiencing significant growth of on-chain finance. If this trend continues because of the advantages of programmable settlement that I have described, we are painting ourselves into a corner unless we obtain the safety and efficiency of central bank money or effectively central bank money for the cash settlement leg. We are looking at a situation in which in some cases a stablecoin, which is perfectly fine for retail transactions, could depreciate, let's say, 0.999 in value rather than one. And while for retail applications 0.999 might seem perfectly safe, it is far from perfectly safe for a billion dollar treasury repo. If market participants had the view that they were going to receive 0.999 in exchange for their treasury repos, the repurchase agreement market could break down. And if on-chain finance becomes the main approach in the treasury repo market, that would be simply unsatisfactory. It would be extreme systemic risk. So I leave it up to you central bankers out there to resolve this issue. It is your responsibility. Thank you.

Thank you, Darrell. And this resonates well with the money market data that the ECB is releasing regularly and the truth that the repo market is very, very much in potentially of a systemic importance if not to say issue. But let me give the floor to Uri. Now we have already quite a few questions on the chat but I keep them for the discussion afterwards.

Yeah, thank you. And I would share my slides myself. One second. I hope this works. Yeah, you can, I hope you can see my slides. And I would zoom on one topic which is really the remuneration of money of the future. And yeah, let me start with some definitions. Sorry. Yeah, money, okay, money is used a bit interchangeably in two meanings. One is the means of payment, really money to fulfill the means of payment function. What is readily usable anytime without liquidity or market risk, which can be directly, you know, used for paying, matched being matched with executable prices. While the other thing is invested money, and invested money is money which is not readily available. It's a cash flow in the future period or it is subject to market risk. And of course for the discussion on remunerating money or not, this distinction is very important. And yeah, moving to remuneration, this ambiguity also seems to exist. And interestingly, MiCA is, you know, spotted this and is very explicit in suppressing remuneration of stablecoins. And that includes very clearly in their case also any remuneration of sort of fixed deposits, fixed time deposits of stablecoins. So anything would be excluded there. So in this sense, MiCA imposes really a double additional constraint on stablecoins relative to commercial bank deposits which can of course be remunerated in the form of sight deposits, but even in the form of readily available deposits for payments. Some, you know, very brief history of thought, a bit all over the place for a second. I mean the topic of suppressing or preventing interest on money is a very old one and it does even, you know, go further back than maybe Christians not being allowed to charge interest to other Christians. And so it's a whole, I would say, discussion of millennia. And in the 16th century the Pope ruled that 5% was an acceptable rate in principle. Of course economists would say that constraining price formation without proven market failure is not a good idea and normally makes everyone worse off and is therefore normally inconsistent with the initial intentions. But yeah, moving forward, Cassel and also Friedman had this vision of negative returns of money or let's say of producing a deflationary context to avoiding that holding money has negative, has opportunity costs in principle, which goes a bit in the direction of, yeah, remunerating means of payments, although taking a special approach to it. And then maybe, yeah, people who have taken up the topic then again later on, Black in 1970 and Poole in 1980s who both discuss a world where banks are free to remunerate sight deposits and they're excited about the question whether there is an equilibrium, a monetary sort of equilibrium and determinacy of prices, if you remove this regulation which at that time was Regulation Q applying in the US. And Black comes to conclusions which are now difficult to really understand but in line with macroeconomic authors of preceding years that there would be an issue, while Poole, you know, says the opposite which is intuitive to us today saying that this is unspectacular to allow banks to remunerate sight deposits. It would just be a matter of transaction cost like asset liquidation costs which would determine the remuneration of sight deposits. Regulation Q, yeah, to look at this episode where also sight deposits could not be remunerated. And the justifications of this act were somehow, you know, similar to what you hear maybe today when discussion of new forms of money, remuneration of new forms of money is being discussed. So for example, country banks would lend too much to larger banks and financial centers in the form of deposits to obtain remuneration and those big banks would use them for speculative purposes instead of providing credit to the real economy. And also there was a feeling that one could increase bank profits by prohibiting interest, by limiting competition. A strange argument but in those years there was this feeling that banks should have higher profits. And then in the late '70s when interest rates went really high, Regulation Q caused of course problems, outflows of deposits, and then Regulation Q was phased out in '82. Another, you know, perspective on this was interest on reserves. In 2006 in the US, the Financial Services Regulatory Relief Act authorized the Fed to pay interest, was supposed to be effective in 2011 only. Then it was advanced to 2008 and interest on reserves was for the first time then allowed in almost 100 years of Fed history in 2008 and as you know is still being used. Euro system similar, let's say, development but different timeline. As of 1999, the Euro system had a deposit facility, but banks just have to transfer at the end of the day money there and then they get remunerated and can get it back next day. And interestingly, the Bank of Finland had already in 1999 an automatic remuneration of any excess reserves. So in this sense, you know, just remunerating the sight deposits of banks. And I think everybody somehow admitted that this is more efficient. The rest of the Euro system was reluctant. And it took, yeah, 27 years for the Euro system to acknowledge this really and to accept the change of the systems that would allow for automatic remuneration of, you know, any reserve holdings in line with the deposit facility rate. CBDC, next topic where this was discussed and now we come really to the future of money which should be the topic today. So one could say from '15 to '20 remuneration of CBDC was discussed extensively and there were two schools of economists that promoted remuneration and I call them here the activists and the pacifists. The activists, you know, represented by Brunnermeier, Kumhof and others, you know...

Monetary macroeconomists who saw in the remuneration of CBDC a new useful independent additional monetary policy tool which would allow improving macroeconomic outcomes. There are various papers you know which play with interest rate rules on CBDC and show that this is great. But then there were also the pacifist and I put myself into this camp who would say no, I mean one should remunerate CBDC but not for the reasons that those activists claim, but for correcting the anomaly that banknotes are unremunerated whatever interest rate level prevails in the economy which creates non-neutral flows of funds not only in the negative interest rate context but of course it makes a difference if nominal rates are 50% or 5% for this effect. And under the pacifist interests on CBDC would just be moved normally in parallel with other official rates, would reflect liquidity premium and would be such that it would not invite large scale investments into CBDC. But anyway, neither of those schools of economists had any impact because an unholy alliance against remuneration easily won. And this unholy alliance consisted of financial repression conspiracies and that fear that negative remuneration and the idea or the assumption that CBDC is part of a plot to discontinue banknotes would open the door for unlimited negative interest rate policies. On the other side, we have the banks fearing positive remuneration to create competitive pressures on remunerating sight deposits. Non-economists, lawyers, etc. anyway do not see the point and central banks were easily ready to compromise to keep hope to issue CBDC despite all this opposition and anticipating the likely instrumentalization of remuneration by the opponents. Stable coins. I already mentioned MICA is super explicit prohibits also any form of rewards and remuneration of term deposits in stable coins. The Genius Act is only prohibiting let's say direct remuneration and according to the US banking association in a letter this restriction is easily bypassed and it is bypassed because for example Tether at I'll find that 86 billion out of total 290 billion stable coins are effectively remunerated and this goes via the exchanges, the wallet providers who get money from the stable coin issuers to then present rewards and not calling them interest and apparently the fight around this is ongoing in the US and a compromise seems to emerge in the Clarity Act. Sorry. And yeah, let me say why I believe money should not be remuneration constrained. This is because it's the self-defeating anachronism I just claim here. The world is nearly fully digitalized or electronic 24/7 immediacy, states through straight through processing, low transaction cost already discussed in Black and Farmer, the substitutability between forms of money is extremely high today. And yeah, already Keynes you know noted that money only defers or means of payment and within the spectrum of money, spectrums of money defers only degree from other articles deriving its importance from having a greater liquidity premium than any other article. But this liquidity premium for readily available money cannot, you know, it cannot make sense to make it fluctuate with short-term market rates. So that sometimes it's minus 1%, sometimes 2%, sometimes 5%, sometimes 40%, that has no economic rationale, creates non-neutrality, complexity, is a recipe for financial instability. As economists we cannot defend this. I mean some would just say this is to protect banks, but if you want to protect banks you have to argue that banks have a positive externality and this is not only synergies between deposit and lending services to have synergies in production does not mean that you have a positive externality and I'm not aware of anyone who has convincingly argued that there is a positive externality of banking and even if there would be such a positive externality it should be addressed by a Pigou tax on competitors or subsidies of banks which are independently of the interest rate cycle. So just constraining remuneration of competing forms of money to zero doesn't make sense. And if you take the example of stable coins and yeah what illustrates it, if stable coins would really be unremunerated everybody should have a preference to hold Swiss Franc stable coins because the Swiss Franc has typically a low interest rate level but a tendency to appreciate over time. Of course, freedom to remunerate stable coins doesn't mean that they would follow closely market rates. There is a liquidity premium on readily available money that should be not zero. And on CBDC I think the consequence of not accepting remuneration including sometimes negative remuneration of high holdings was to accept quantity constraints on CBDCs and this I would say is quite a serious defeat. So central bank money is quantity constrained in a world where nothing else is subject to similar constraints. So this is one could say with nature a reversal of values as normally we would expect the public sector setting constraints on the private sector not the other way around and normally we would expect commercial bank money to be junior to central bank money and not the other way around as it seems to emerge potentially with digital euro if digital euro is only a payment instrument layer on top of commercial bank money. Yeah, let me stop here.

Very clear views agree. We'll have discussions on this, I'm sure. But that's well documented. Thank you very much. And I give the floor to our last speaker, Stefan.

Thank you very much Stefan. I think central banks are speeding up a bit we can say maybe and but the banking sector lobby is very strong just as an anecdote sometimes I reply to posts on LinkedIn and they have been contacted by the French banking federation and they are organizing a session to educate the former central bankers to what the system should look like. So that's a very active link. There are quite a few comments on the chat, but I'm trying to summarize it and to frame it into a handful of questions so that we can go once again through all of you for the topics I will mention and apologies for those remarks that have been too long and technical to be here in the list. But one question was the opinion on the 100% sovereign money system like how it was in old days where you what do you think about it? A second one which is more forward-looking is US versus EU. That was Kaunl and Pedro asking this, you know, who will win what will prevail? What will be the steady state in half a decade or a decade will be more towards the ECB way to look at things that looks at privacy and stability or the US that looks at payments and innovation more and the associated problems to each of the approaches. There was one question I think it was to Darrell on the specifics of a case for FX exchange between banks. I don't know if you read the comments but how does a central ledger work in that case more specifically and there was another question to everyone I think which is interesting is on by Gabriela how can the EU use strategically its financial convergence through you know CBDC and through its general approach to money in the future. How can these be harnessed to the capital markets union and further integration you know in the context of giving incentives to non-EU member non-Euro members to become closer to the Euro pool and finally perhaps Marena's question what is society giving up with not having a remunerated retail CBDC that's a question to Stefan. I hope that was not too long of a summary of the questions. Maybe we go in the same order if you don't mind to answer the ones you see more fit but it would be good to have your view to all of you. What is the future steady state how will it look like to your view? Thank you.

Thanks a lot. Very interesting talks and a lot of food for thought. So let me ask a few questions to the panel members and then also to the audience address some of their questions. For Darrell I have a question about tokenization of the reserves is actually a lot of the proposals you propose tokenize a lot of the reserves. Does it square well with downsizing the Fed's balance sheet like Kevin Warsh wants to do? I know that the option four was a way out but you were not very favorable for the option four. So do we have to look at a big balance sheet size in the future and is this a problem? For Uri I would like to ask you, there's this theory that you want to give banks a stick and a carrot. So you give them a lot of bank regulation and in order to keep them in the regulated parameter you have to give them some carrots as well. And one carrot would be as Stefan pointed out that you don't enforce competition so much. So in particular, don't you prevent competition from stable coins and from CBDC not remunerating. I'm not saying I'm in favor of that, but I'm just saying that's one theory you didn't mention. This I was just wondering. And for Stefan it's related to that. You said you want to move everything from what we have done for hundreds of years to the digital world but cash we didn't remunerate it. Would you, you didn't answer whether you would like to put an interest payment on cash or on digital forms of cash on CBDC or not. I was just curious what your thinking was. So concerning the questions from the audience I try make a quick attempt. So narrow banks I think is my view I can live with narrow banks. I think it's fine. Of course, if you force banks only to narrow banking, there might be a little bit less credit provision to the real economy and we have to actually study some, you know, how the growth implications are and of course the only paper I know is by Sebastian Merkel who really put this in a macroeconomic framework and then said what are the implications of narrow banking on the real growth rate for the macroeconomy and we have to take this into account and this might be quite costly to some extent. It might give you some benefit on stability side but it also lowers the growth rate of the macroeconomy and this is no longer quite some welfare losses. About the US versus European Union or Euro area. It's true that you might think that US is more innovative in all this and promotes stable coins and there are new things coming up for the European Union or is actually regulating everything and might be more privacy focused more stability focused. But if you look at payments very specifically, there are a lot of vested interests in the United States which also prevent innovation. So there's not so much innovation going on. Certain payment aspects I would say are more modern in the European Union than in the United States. And it's because some rents were just eroded. So there's a lot of rent protection in the United States as well. And it's not only innovation. So it's not clear that a clear framework would not help innovation in particular if you have a back rail and a front rail as Stefan mentioned as well. And can you use strategically the CBDC to harness on essentially capital markets union? I think definitely yes and it should be also used this way. It's what I mentioned is out of equilibrium threat. We do that and you know and for this of course you have to pay interest on CBDC because otherwise it will not be picked up. I don't think it will go anywhere without any interest payments but it can be used to force the market unions to harmonize many other aspects as well. I think that would be a forceful force here and I think that I see this the same way as the question asked then. Let me leave it at that. Thanks a lot for all the questions and all other contributions.

Thank you Marcus. Darrell.

Thank you Natasha. The question in the chat for me is related to the benefits of on-chain finance. What are they? And I already mentioned the notion of counterparty risk and in settlement. But actually the primary motivation today and for the next few years is quite mundane. It's 24/7. So we could do all of that on a 24/7 centralized ledger. And I think Stefan's remarks, Stefan Ingves's remarks were consistent with that. But that's what everyone wants. And currently central banks have not provided in most cases 24/7 payment systems that could mesh with 24/7 ledgers of assets. So that's a big big advantage. It's the big driver today. Nobody wants to stack up money in advance of a three-day weekend or a two-day weekend. They want to be able to do 24/7. Another advantage is transparency. Control transparency so that you can actually see what you've got and you can see the transactions you've made and that doesn't mean blockchain transparency where the whole world can see what you have. It means transparency that's controlled to the parties that need to know and that could include regulators. So AML, CFT and financial stability monitoring can be conducted much more efficiently on on-chain finance. The last one is also related to transparency. It's called trade reconciliation. So when I send Marcus my securities, I don't need to say did you get them Marcus and did you send me the euros that you owe me? It's all recorded live on the blockchain including what we agreed to do by when. Marcus asked a very good question which is what does this mean for the size of the central bank's balance sheet? If we start to fragment the way that reserves are supplied by the central bank, might that increase the required size of the central bank's balance sheet? And the answer is depends on design. But yes, if you don't do a clever design, it would. And the key elements for avoiding expansion of the balance sheet is that every ledger that depends on access to the tokenized reserves needs to have 24/7 fungibility with the central bank's ledger in order not to expand the central bank's balance sheet. Let me unpack that and then I'll finish. If market participants want to store central bank money or narrow bank money backed by central bank deposits on several ledgers and they don't have instant 24/7 access, those ledgers don't have instant 24/7 access to each other then market participants will stack up their various monies on various different ledgers and you won't get the benefits of netting and simultaneity that you would need to keep the central bank's balance sheet down to size and size does seem to be a concern for some central banks. So yes, the design is very important. Fewer ledgers and 24/7 fungibility among them will take care of this problem.