Man with dark hair and a blue shirt with coins flying around


Future of Money scenario 4 - ‘Government coin’: a monetary utopia of innovation and regulation

In a world dominated by government coins, the fourth and final scenario generated from our future of money research, digital assets flourish. However, policymakers are determined to protect and defend monetary sovereignty, and regulate accordingly.

Authorities establish minimum protections for consumers and determine industry governance.

Central Bank Digital Currencies (CBDCs) and/or regulated stablecoins become mainstream, competing with existing fiat and electronic cash as the primary means of payment.

Licensing to distribute wallets (e.g., for legacy banks) provides consumer protections and controls, while also creating potential barriers to entry.

There is a fine line between customer protection, privacy and potential abuses of power as authorities have increased visibility of user transactions.

Digital currencies join the mainstream, while governments protect and participate. Confidence in the financial system is enhanced. It is more inclusive. Costs are lower. Efficiency is also enhanced.

As a result, digital currencies flourish. Government coins and regulated private sector stablecoins become the predominant methods of payment and largely displace old-style electronic money and physical cash. Where appropriate, ways are found to adapt, reinforce or re-engineer processes and regulatory frameworks to manage digital assets and address new types of risk.

Technological innovations and the financial services industry are supervised with firm regulation. Nations and closely allied regional trading blocs such as the European Union retain monetary sovereignty. Blockchains – and other forms of distributed ledger technology – earn reputations as important, socially useful, sources of insight. They come to be seen as the ‘memory’ of an economy.

All stakeholders – consumers, corporates, governments, regulators, central banks and other institutions such as pension, endowment and sovereign wealth funds – have confidence in reforms. Clear lines are drawn between customer protection, privacy and potential abuses of centralised and decentralised power. Data collection and storage is secure and respectful of confidentiality and choice.

Sturdy regulatory guard rails underpin financial stability and enhance financial literacy and inclusion. Behavioural factors support residual demand for physical cash, but pricing incentives, convenience and transparency drive digital currency adoption rates.

At the same time, consumers, corporates and institutional participants dedicate time and effort to becoming accustomed to government-backed digital currencies as well as the evolving monetary metaverse.

There’s disruption in the banking and financial services industries too. Nonetheless, partly because participants have prepared thoroughly, the net effect of disruption is positive for incumbents. Private commercial banks successfully act as digital participants alongside new entrants to a market that, overall, gets bigger. Decentralised cryptocurrencies are tolerated but exist only at the periphery of mainstream monetary activities.

The world’s largest economies agree compatible cross-border monetary, regulatory and prudential standards. Interoperable technologies promote the development of the sharing economy on provincial, national, regional and international scales. Emerging economies embrace digital currencies. Global improvements in market standards, talent, innovation, institutional and corporate governance, and environmental cooperation are engendered by agreed standards and interoperability.

Reward coins are widely used in marketing to nurture customer loyalty. The popularity of digital assets such as ‘non-fungible tokens’ (NFTs) follows the widespread acceptance of fungible assets such as digital currencies.

Central bank digital currencies – government coins – are used in retail marketplaces, and are understood and accepted as fiat currency, as legacy notes and coins are. Adaptation of powers of seigniorage – the difference between the face value of money and the cost of producing it – gives CBDCs the ability to pay interest, blurring the boundaries between central and commercial banks. Indeed, the latter may administer CBDCs on behalf of central authorities, using their established customer bases and distribution networks to facilitate adoption. Nevertheless, interest rates paid on government coins could further strengthen central banks’ continued control of the wider monetary environment, and challenge historical banking models significantly.

In the world of government coins, commercial banks and adjacent providers of financial services are granted wholesale or ‘digital clearing-house’ status, providing some insulation from disruptive new entrants and protecting profit pools. Digital credit – commercial and retail lending with accompanying digital assets and liabilities – grows and eventually replaces traditional mechanisms. Nonetheless, non-traditional banks, other financial services participants, and big tech businesses still find ways to adapt and exert competitive pressure.

As in the larger part of pre-2023 monetary history, central banks will create money while private sector institutions will remain active in the formation of private credit and, by extension, currency. Differences are noticed in times of systemic emergency – as they were in the global financial crisis of 2007 to 2009. Outside the ambit of senior public and private specialists, however, such technical monetary realities go largely unnoticed.

This scenario involves balance that may be hard to achieve. It will be created only with determination, investment, innovation and co-operation. Our Deloitte base case recognises this ideal, but also accommodates the counter forces of inertia, regulatory caution and stretched ambition.

Coming next: We consider how things will play out, and the implications for our base case – Government coin – on stakeholders.

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