Why central banks are key to electronic money

Singleness requires central bank settlement

Traditional money achieves 'no questions asked' acceptance because central banks guarantee that one euro equals one euro regardless of the issuing bank, a foundation stable coins currently lack.

Two-tier system provides elasticity and safety

Commercial banks create elastic liquidity while central banks ensure settlement finality even during failures, complemented by deposit insurance that protects retail holders.

Blockchain congestion limits scale

Validator fees and confirmation delays rise with transaction volume, creating technical barriers to widespread adoption.

Value fluctuation undermines utility

Unlike bank deposits, stable coins trade at variable rates around par, making them unsuitable for wholesale transactions requiring exact one-to-one convertibility.

Unhosted wallets enable regulatory arbitrage

Current structures allow users to bypass AML and KYC controls that traditional banks implement, creating integrity risks.

Atomic settlement reduces friction

Programmable money enables simultaneous asset exchange and 24/7 operations while automating complex workflows.

Cross-border pilots show promise

BIS projects with eight central banks demonstrate tokenization can streamline correspondent banking, cutting costs and time for international payments.

US legislation accelerates adoption

The Genius Act authorizes dollar-backed stable coins while the Clarity Act proposes user protections, moving digital money from theory to practice.

Central bank backstops may be necessary

Stable coins might require central bank guarantees and access to safe assets to achieve true stability at scale, integrating them into rather than replacing the existing system.