The Future of Money Is Plural

Key takeaways

• The four leading forms of digital and physical money are optimised for different functions — settlement finality, programmable transfer, cross-border reach and offline resilience. Treating them as rivals for a single role obscures more than it reveals.

• Stablecoins have grown to roughly $320 billion, but they settle neither directly nor indirectly on central bank balance sheets. The Bank for International Settlements classifies current designs as closer to exchange-traded fund shares than to a means of payment (BIS, 2026) — a functional description, not a verdict.

• The most consequential stablecoin question may not be bank disintermediation but sovereign debt. Issuers' Treasury bill holdings have reached a scale comparable to large jurisdictions and government money market funds (Ahmed & Aldasoro, 2025; BIS, 2026).

• Cash is not disappearing. Euro banknote circulation has grown over the past two decades even as cash's share of daily transactions has fallen (Clipal & Zamora-Pérez, 2025; Faella & Zamora-Pérez, 2025). What cash does has changed; how much of it exists has not.

• The plausible outcome is a layered system in which several instruments coexist, with the division of labour between them settled by regulation and institutional trust rather than by technology.

Four instruments, four different problems

The public conversation about the future of money is usually framed as a contest. Central bank digital currency against stablecoins. Private tokens against public money. Digital against cash. The framing assumes a single job to be done and asks which instrument will do it.

That assumption does not survive contact with the instruments themselves. A tokenised deposit is a claim on a supervised bank, engineered for programmable settlement inside a prudential perimeter (Garratt & Shin, 2023). A stablecoin is a bearer-like token on an open ledger, engineered for reach and composability. A retail central bank digital currency is a public liability engineered for universal access and, in most designs, offline capability. Cash is engineered for anonymity, resilience and functioning when nothing else does.

These are answers to different questions. The interesting analytical problem is not which one wins, but how the functions get allocated among them — and what determines that allocation.

What settlement finality actually requires

The Bank for International Settlements (BIS, 2026) sets out the benchmark clearly in the third chapter of its 2026 Annual Economic Report. An effective monetary system rests on two foundational properties: coordination on a common unit of account, and the singleness of money — the guarantee that claims denominated in that unit are redeemable at par with central bank money, with finality. Both are underpinned by an elastic supply of liquidity at the system level.

Singleness is the demanding one. It means a recipient need not investigate the pedigree of the claim being offered — the property economists describe as accepting money with no questions asked. It holds not because the technology is sound but because supervised intermediaries hold accounts at a central bank that can always supply settlement balances to a solvent institution (Garratt & Shin, 2023).

Against that benchmark, current stablecoin arrangements have a structural gap. Stablecoin transfers settle neither directly nor indirectly on central bank balance sheets, which means they cannot guarantee exchange at par across issuers and blockchains under all conditions. Secondary market prices deviate from par, and redemption frictions are common — leading the BIS (2026) to conclude that current designs resemble exchange-traded fund shares more closely than a means of payment.

That is a functional classification, not a moral one. Plenty of useful financial instruments are not money. The point is that an instrument which requires questions to be asked before acceptance cannot perform the coordination function that makes money valuable in the first place.

Tokenised deposits: the incumbent's answer

Banks have a response, and it is more advanced than commonly assumed. A tokenised deposit is a digital representation of commercial bank money on a programmable platform, conferring a direct claim on the issuing bank and redeemable at par for central bank money (Garratt & Shin, 2023). It inherits the institutional scaffolding — supervision, deposit insurance, central bank access — that stablecoins lack, while acquiring the programmability that makes tokenisation interesting. The architecture rests on the unified ledger blueprint the BIS has developed across successive annual reports (BIS, 2023, 2025).

The BIS Innovation Hub's Project Agorá is the most substantial test of this to date. It brings together eight central banks and more than 40 regulated institutions on a shared cross-border platform combining a unifying ledger for tokenised commercial bank deposits with separate, jurisdiction-specific ledgers for tokenised central bank reserves. The prototype demonstrated that payments can settle atomically across currencies once validation is complete and balances are locked, while legal analysis indicated that tokenisation does not change the nature of deposits or reserves (BIS, 2026).

That last finding matters more than the technical one. If tokenisation is legally neutral with respect to what a deposit is, then the regulatory architecture built over the past century does not need rebuilding — it needs porting. The BIS (2026) is careful to note that moving to production would require further work on resilience, governance and operating rules. A working prototype among willing participants is not a production system among unwilling ones.

Stablecoins and the short end of the yield curve

The stablecoin debate has fixated on whether these instruments will drain bank deposits. The evidence suggests a different channel deserves more attention.

Stablecoin market capitalisation stood at around $320 billion at the end of May 2026, and 99.4% of fiat-backed stablecoins by market value are pegged to the US dollar. Annual transaction volume reached an estimated $28 trillion in 2025 — a figure equivalent to less than three business weeks of settlement volume on the largest US wholesale payment systems, and one that falls dramatically when transfers between wallets under common ownership are stripped out (BIS, 2026). Scale claims in this sector require careful reading of what is being counted.

The consequential number is elsewhere. Issuers' holdings of Treasury bills have risen to levels comparable with those of large jurisdictions and government money market funds (BIS, 2026), and empirical work finds that increases in stablecoin market capitalisation push down the short end of sovereign yield curves in issuing jurisdictions (Ahmed & Aldasoro, 2025).

This creates a two-way channel that has little to do with payments. Growth in stablecoins lowers short-term sovereign funding costs; large redemptions would force fire sales of the same instruments into money markets. A payment technology has become, incidentally, a source of demand for government paper — and a potential transmitter of stress to it.

One further observation cuts against the technological-inevitability narrative: robust domestic regulatory frameworks have not by themselves catalysed large non-dollar stablecoin markets, and issuance of regulation-compliant non-dollar coins remains a minute fraction of dollar-pegged issuance (BIS, 2026). Whatever is driving stablecoin demand, it is not primarily the availability of a legal framework.

Why cash persists

The most reliable prediction in this field has also been the most consistently wrong: that cash is about to disappear.

Euro banknote demand has grown robustly over the past two decades despite ongoing payment digitisation, even as cash's share of daily transactions has declined (Faella & Zamora-Pérez, 2025). Cash was still used in roughly half of physical point-of-sale transactions by volume in 2024, remaining the most frequently used payment method with the widest merchant acceptance (Clipal & Zamora-Pérez, 2025). Researchers have labelled the pattern the paradox of banknotes: a falling transactional share alongside rising aggregate circulation.

Japan shows the same divergence from the other direction, and more sharply. The cashless payment ratio rose from 13.2% in 2010 to 42.8% in 2024, meeting the government's target a year ahead of schedule (Ministry of Economy, Trade and Industry [METI], 2026). Yet the ratio of banknotes in circulation to GDP — which sat just under 10% through most of the twentieth century — has run at around 20% from the mid-1990s to the present, more than twice the historical norm, a pattern attributed partly to the prolonged low interest rate environment that weakened the incentive to deposit cash rather than hold it (Uchida, 2025). Digital payments and cash holdings grew at the same time.

Sweden is the instructive counter-case. Banknotes in circulation there have fallen to 0.9% of GDP — a decline attributed partly to the convenience of debit cards and person-to-person transfers, but also to cash access becoming inconvenient as branch networks contracted. Sweden legislated in 2021 to require financial institutions to maintain locations where cash can be withdrawn and deposited, and the United Kingdom subsequently set distance standards for ATM placement under a law passed in 2023 (Uchida, 2025). The market withdrew an option; legislatures put it back. That sequence tells us something about what cash is for.

Interpretation: the evidence is consistent with cash having shifted from transaction infrastructure to resilience and access infrastructure — a store of value, a fallback when systems fail, and a means of payment for those digital systems serve poorly. Those functions do not shrink as digital payments improve. They may grow.

The layered system as the likely equilibrium

Both major central bank projects are best read as hedges rather than replacements.

The digital euro moved from its preparation phase into a pilot track during 2026: the call for expressions of interest closed in May, participating payment service providers were notified at the end of June, development begins in the third quarter of 2026, and a twelve-month operational pilot is scheduled for the second half of 2027 (European Central Bank [ECB], 2026). First issuance is targeted for 2029, conditional on EU co-legislators adopting the enabling Regulation, and the ECB (2025) frames the instrument explicitly as a complement to cash rather than a substitute.

The Bank of Japan began a CBDC pilot programme in 2023 and established a forum drawing on private sector expertise, but has taken no decision on issuance. Its Deputy Governor has described a CBDC as potentially a critical piece of infrastructure for Japan's payment and settlement systems, while insisting the question must be settled by public deliberation (Uchida, 2025). The forum held its fifth general meeting in January 2026, reviewing high-load testing of the pilot system (Bank of Japan, 2026).

Neither institution is behaving like an organisation that expects one instrument to absorb the others.

Interpretation: the coherent reading of this evidence is a layered system. Central bank money remains the anchor and the settlement asset. Tokenised deposits become the workhorse for programmable wholesale and corporate flows, because they carry the institutional scaffolding into the new environment. Stablecoins occupy a contested middle position that regulation, not technology, will resolve — pushed toward payment-instrument status by par-redeemability requirements, or toward investment-instrument status by permissive reserve rules. Cash persists as resilience infrastructure. The division of labour is determined by institutional trust and regulatory choice, not by which ledger is fastest.

What would falsify this

An argument that cannot be wrong is not worth making. Three developments would count as evidence against the layered account:

A stablecoin achieving genuine par settlement at scale. If an issuer obtained conditional central bank account access under supervision and sustained par redeemability through a stress episode, the functional distinction from tokenised deposits would substantially collapse.

Cash demand breaking its pattern. A sustained fall in euro banknote circulation, absent legislative intervention, would suggest cash's resilience function is weaker than the last two decades imply.

Tokenised deposits failing to leave the pilot stage. If Project Agorá and comparable initiatives do not reach production within roughly five years, the constraint is likely governance and legal coordination rather than technology — and the middle layer of the system would remain unbuilt, leaving stablecoins to occupy space by default.

What remains unresolved

Several questions are genuinely open, and this analysis should not be read as settling them.

The substitution relationship between tokenised deposits and retail CBDC is unmeasured, because neither exists at scale. Whether stablecoin holdings of short-dated government paper create a materially destabilising channel depends on redemption dynamics that have not yet been observed under real stress. And the adoption question — what actually determines whether a population takes up a new form of money — remains, in my view, the weakest-evidenced part of the entire literature, precisely because it is institutional rather than technical and therefore resists the modelling that the field prefers.

The BIS (2026) closes on a point worth carrying forward: money is an institutional achievement rather than a technology, and its properties are solutions to economic frictions rather than incidental features. Any new arrangement must respect that inheritance or rediscover why it exists.

Author note

Pedro H. Farfan-Ledezma https://orcid.org/0009-0001-1211-3366

Conflict of interest

The author provides advisory services to clients in the financial sector. No client had any role in the preparation of this article.

References

Ahmed, R., & Aldasoro, I. (2025). Stablecoins and safe asset prices (BIS Working Papers No. 1270). Bank for International Settlements. https://www.bis.org/publ/work1270.htm

Bank for International Settlements. (2023). Blueprint for the future monetary system: Improving the old, enabling the new. In Annual economic report 2023 (Chap. III). https://www.bis.org/publ/arpdf/ar2023e3.htm

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Garratt, R., & Shin, H. S. (2023). Stablecoins versus tokenised deposits: Implications for the singleness of money (BIS Bulletin No. 73). Bank for International Settlements. https://www.bis.org/publ/bisbull73.htm

Ministry of Economy, Trade and Industry. (2026, March 31). Ratio of cashless payment among the total amount paid by consumers [Press release]. https://www.meti.go.jp/english/press/2026/0331_005.html

Uchida, S. (2025, June 7). The Bank of Japan from the perspective of business operations [Speech]. 2025 Spring Annual Meeting of the Japan Society of Monetary Economics, Tokyo, Japan. https://www.boj.or.jp/en/about/press/koen_2025/data/ko250607a1.pdf

Suggested citation

Farfan-Ledezma, P. H. (2026, July 26). The future of money is plural. The Future of Money & Finance. https://www.phfarfan.com/post/the-future-of-money-is-plural