OMFIF Digital Monetary Institute,
If widely adopted, tokenised money market funds may become one of the most consequential innovations in wholesale liquidity management.
As markets explore tokenised deposits and stablecoins, tokenised money market fund shares deserve equal attention, given their high credit quality, interest-bearing nature and institutional familiarity. Not only does tokenisation bring considerable benefits to money market fund shares, it changes how institutional liquidity is managed, shifting it from redemption towards circulation. It transforms money market funds from a passive savings vehicle to a multi-purpose financial instrument.[...]
Financial Times,
The UK government has been preparing to launch the most consequential state initiatives on the tokenisation of financial assets. The UK now needs to press ahead with a decision on the tender and subsequent development. The instrument, dubbed the Digit, could be the catalyst that brings tokenised money and assets more into the financial mainstream. While some countries like China have issued digital currencies, this would be the first issuance directly on a blockchain of tokenised treasury security by a G7 country. [...]
OMFIF Commentary,
Tokenisation promises to make financial transactions effectively instantaneous and frictionless across a broad range of assets. Interest-bearing securities could be converted into money on demand and converted back just as quickly. In such an environment, holding money in advance of payments may no longer be necessary. Money balances would shrink towards zero and, at the limit, disappear altogether. Reducing transaction frictions would therefore not just improve efficiency, it would recalibrate the value of money itself. [...]
The Bretton Woods Committee Blog,
The International Monetary Fund (IMF) is trailing the debate about digital monies. It is slow to incorporate key new monetary developments into its remit to improve cross-border payments and strengthen the international monetary system. The IMF has been a money innovator in the past, notably with the introduction of the Special Drawing Rights (SDR). But today, for an institution that has money in its name, it is conspicuously absent in its efforts to improve it. [...]
The Banker,
Once the preserve of the crypto community, stablecoins in recent years have been touted as a means of disrupting the global payments infrastructure, not least within areas such as cross-border transactions and foreign exchange settlement. Yet while stablecoins exhibit properties that lend themselves to settlement, a better option for cross-border payments has emerged in the form of tokenised money market funds. [...]
OMFIF Commentary,
Stablecoins are being advertised as increasing the demand for high-quality assets. Some even suggest they may solve governments' debt problems by producing an increased demand for Treasury securities. US Treasury Secretary Scott Bessent said: "A thriving stablecoin ecosystem will drive demand from the private sector for US Treasuries, which back stablecoins. This newfound demand could lower government borrowing costs and help rein in the national debt."
This view rests on the strong assumption that stablecoins can increase the net demand for Treasury securities. While this is possible, it is not assured, and under some conditions net demand could be unchanged or even lower. [...]
LSE Business Review Blog,
Central banks are exploring the idea of issuing a digital banknote or retail central bank digital currency (CBDC). Today, they offer only physical banknotes to the general public.
With increasing digitalisation in payments and already dominant use of digital means, it seems obvious that central banks should follow suit. Yet, many remain hesitant amid the availability of a broad range of alternative, typically bank-based, digital payment tools. Andrew Bailey, Governor of the Bank of England recently questioned the need for a retail CBDC if banks can offer a good alternative. The question therefore is, is a retail CBDC needed? The answer depends on how central banks see their role. [...]
OMFIF Commentary,
Stablecoins have brought national-currency denominated monies onto blockchain. Not only is this highly commendable, it also crucially exposes the slowness of traditional money issuers in adopting new technologies. Recent regulatory advances, however, now seem to bestow stablecoins with specific advantages that may drive money fragmentation and arbitrage, create new compliance risks and distort fair competition. [...]
BCRP, RBWC, IDB 16th Annual Conference,
[...] the new U.S. administration has engineered de facto a system reset. Its policy stance seems geared towards undermining the very foundations of the unique international role of the dollar. It seems that the quest for an alternative model is now far more urgent as it has become apparent that relying on a single currency may be just too risky. As there is no other currency that can supplant the dollar, nor would it be desirable, the alternative will likely be a greater currency diversification.[...]
LSE School of Public Policy Seminar,
[...] During the IMF Spring Meetings in April, IMF Chief Economist Pierre-Olivier Gourinchas stressed that the “global economic system that has been operating for the last 80 years has been reset.” In this seminar, I will try to offer you a new perspective on the international monetary dimension of the system reset. There is a new type of currency war looming which is about shifting the relative attractiveness of currencies in international payments. I will provide a brief overview of what the system is about and then focus on how digital monies may change it and why. The innovation with digital monies is not how payments are being made but how they are being processed and how thereby they may change the incentives for holding currencies.[...]
The American Banker,
Predictions about the demise of the U.S. dollar as the main international currency seem to be gaining momentum amid the recent drastic and unpredictable economic policy measures of the U.S. administration on tariffs. Credible paths toward an orderly regime change remain rare. Projects like mBridge with the participation of the central banks of China, Hong Kong, Saudi Arabia, Thailand and the United Arab Emirates promote greater currency diversification in international payments. Recent events may have made such projects even more relevant. [...]
OMFIF Commentary,
Different initiatives by central banks, financial market infrastructure providers and bank consortia contemplate building new proprietary systems based on blockchain and other distributed ledger technologies. They are missing the point. The future of FMIs lies not in replicating existing arrangements with DLT, but in joining together existing and emerging ecosystems. [...]
Financial Times Digital Asset Summit, London,
The tokenisation of assets has not progressed as many market participants had expected. The slow progress can undoubtedly be attributed to several factors. But one seems to stand out: The lack of an attractive secondary market. Naturally secondary markets emerge only with market depth and market depth depends on sustained large-scale issuance. Tokenisation needs a large-scale issuer everyone needs to hold. No entity would be better suited than the government. Tokenised government bonds therefore seem the preferred digital asset.
Access to the Federal Reserve’s large value payment system Fedwire is rare for foreign entities. Transactions in Fedwire are in central bank money and is the safest and most efficient way to conduct payments and settlement in U.S. dollars. Current shocks may make access to the Federal Reserve’s balance sheet even more important. Only 119 foreign commercial banks are Fedwire participants.
LSE Business Review Blog,
Stablecoins have recently gained significant attention. The new US administration is promoting their use. In Congress, new stablecoin regulation is advancing rapidly. Stablecoins emerged as the preferred payment instrument in blockchain-enabled ecosystems. But they mostly operate in closed loops. To matter, they will need to adapt to open loop applications through generalised clearing as a foundation for scalability in payments.
U.S. President Donald Trump has a busy agenda upsetting international relations. His executive order to withdraw from the World Health Organisation and the Paris Climate Accord seem indication that the new administration does not believe in the benefits of multilateral engagements. Withdrawing from the International Monetary Fund (IMF) would arguably be the boldest move in the field of international economic collaboration. Governor of the Bank of England Andrew Bailey told the BBC recently that he had urged continued U.S. support for the institution. But would a U.S. IMFexit matter? [...]
LSE IDEAS lecture, London,
[...] I was asked to present on the topic of digital monies and the international monetary system. Both are highly intertwined as digital monies offer great promise to improve the international monetary system. The international economy is seemingly becoming increasingly complicated amid renewed geopolitical tensions that risk fragmentation that undermine the foundations of the rules-based multilateral system established after World War II.[...]
Eleventh Asia-Pacific Forum on the Economy and Finance, Session 2: The Future of the International Monetary System
Prepared remarks, Beijing,
[...] The conference is most timely amid a seemingly increasingly complex and difficult international monetary and financial environment. While the title of the session is the future of the international monetary system, I would like to go back to the past for guidance how the system should evolve. I will focus on the structure of the foreign exchange market as an obstacle for change and emphasise the role digital monies can play as a foundation of a future system.[...]