The digital transformation has reopened a very old question: how should public and private money coexist?
The two-tier monetary system is not a legacy institutional arrangement that technology will make obsolete. It addresses a recurring design problem: how to preserve trust by combining a public monetary anchor with private intermediation and innovation.
Digitalization is changing the instruments, infrastructures, institutions, and business models through which money and financial services are provided. The key question is which aspects of the current architecture should be preserved, and which can safely evolve in a changing ecosystem.
My argument is that the logic of the two-tier system remains relevant, even as its institutional and technological setup evolves.
Today, I will discuss why the public-private division of labor remains relevant in a digital economy and look at how it is evolving in retail and wholesale finance. I will then focus on the strategic implications for banks and on why uncertainty calls for flexibility, experimentation and staged investment.