Money as a coordination device: some historical lessons
Keynote speech by Mr Hyun Song Shin, Economic Adviser and Head of the Monetary and Economic Department of the BIS, at the 14th ILF Conference on the Future of the Financial Sector, 27 January 2026.
Money is a coordination device that knits together the decisions, plans and obligations of actors in the economy. Common knowledge of the value of money is akin to using a common language. Once the institution of money takes hold, strong network effects set in motion a virtuous circle between greater acceptance and greater use. The more others accept and use a particular form of money, the more I wish to adopt it too. Central banks historically have served as the lightning rod for the coordinated acceptance of money.
How do cryptoassets and stablecoins fare in this context? Rather than coalescing around a single platform, the crypto ecosystem has become increasingly fragmented, not only in the underlying "layer 1" blockchains, but also in the so-called "layer 2" blockchains that build on top of the underlying layer. Rather than coordination and network effects that spring from the virtuous circle of greater use and greater acceptance, we see the increasing fragmentation of crypto and the infrastructure ("the rails") that supports it.
Why does crypto lead to greater fragmentation?
The decentralisation agenda that underpins crypto rejects centralised trust in favour of dispersed validators achieving consensus through token economics, or "tokenomics", which underpins the actions of the validators themselves. The validators need sufficient rewards to play their allotted role in the governance of the blockchain. Rewards are in the form of user fees, or other benefits that come from deciding on the sequence of transactions to take place on the blockchain. To sustain validator incentives, congestion and capacity constraints are necessary. When more users flock to a particular blockchain, the capacity constraints become a deterrent for new users to join. Rather than the virtuous circle of greater acceptance and greater use, there is greater fragmentation through the emergence of new blockchains to cater to the users who turn away from existing blockchains. Fragmentation undermines the network effects of money.
This presentation explores the implications of these structural forces behind the institution of money, emphasising the trade-offs between decentralisation and the coordination role of money. It examines how fragmentation affects the functioning of the monetary system and raises critical questions for its future. For a monetary system where stablecoins play a significant role, the design of the points of contact between stablecoins and the conventional monetary system emerges as a key feature for future work. Ultimately, the presentation underscores the enduring importance of trust, coordination, and policy innovation in navigating the future of money.
