Public vs. Private Money: Exploring a Beneficial Co-existence

- Central bank money will keep its role as the anchor of financial systems but it will co-exist with private money

- Private money innovation is key for both assets and products

- Consumers moving from credit cards to private wallets and stablecoins is a 5–10 year journey

Public and private money will continue to co-exist, playing different roles in the evolving financial market ecosystem especially as central banks launch central bank digital currency (CBDC) and as the use cases around stablecoins expand.

“I’m sure that central bank money will keep its role as an anchor. First, there will be continued demand for safe and efficient settlement in financial markets. Central bank money is the only asset that is free from credit risk and liquidity risk,” said Oliver Sigrist, who leads the Swiss National Bank’s (SNB) wholesale CBDC initiative.

“Second, central banks will adapt and continue to provide monetary and financial stability even if markets and underlying technologies change. It is their mandate to do so,” he added.

Dr. Fabian Schär, Professor of Distributed Ledger Technology (Blockchain) and Fintech at the Faculty of Business and Economics at the University of Basel, said that the Swiss National Bank and the private sector have done great work in cooperating and experimenting with open source technology. However, he emphasized that there must be no preferential treatment for permissioned infrastructure, and that true innovation is more likely to occur on open and neutral platforms.

Lily Liu, President of the Solana Foundation, was quick to point out that the private sector’s role is not just about innovation in terms of assets but also products. She noted that settlement cycles that took three days until recently can now be done immediately. “I think that the narrative we’re all very familiar with is blockchain-based payments and fast, cheap, constant, 24/7, settlement,” she said, adding that these transfers can now be done safely even when transactions are international.

While margins may become compressed as a result, new revenue opportunities also arise, which is where product innovation comes in. Jose Fernandez da Ponte, Senior Vice President and General Manager of the Blockchain, Crypto and Digital Currencies team at PayPal, meanwhile, said there is room for private money growth.

“I think that we are on year five of a ten year journey. Adoption has happened in crypto markets, and it is progressing in B2B and cross border payments. Mainstream adoption with consumers using stablecoins for domestic commerce at scale will still take some time,” he added.