Digital Public Money Infrastructure
How can public money fit in the modern digital economy?
The Digital Public Money Infrastructure project aims to find answers to the many aspects of this challenge through interdisciplinary, cross-professional perspectives that bring together experts and practitioners from law, technology, finance, and policy.
The way money moves is changing faster than ever before. From contactless payments to central digital bank currencies, we are entering a time where the foundations of our financial systems are being rewritten. At the heart of this transformation lies a crucial question: how can we build a digital public money infrastructure that is open, fair, privacy-respecting, and serves the public good?
This research brings together academics, regulators, and industry to address how public money can fit in the modern digital economy.
Our project is committed to being transparent and public-facing, ensuring that knowledge, design, and policy ideas are accessible and collaborative. By sharing insights and practice proposals, we aim to support policymakers, researchers, and the public in shaping the future of money.
Working papers
Eduard de Jong
As an offline, digital representation of ownership of a (digital) asset, a digital asset token (DAT) is data stored in a computer controlled by the owner. With its embedded digital signature, a DAT acts as an immutable proof of ownership. A digital trade with two digital inputs: the DAT of the seller and digital public money from the buyer; results in a new DAT for the buyer. The trade is executed as a Delivery-versus-Payment (DvP) protocol using a digital “fair exchange” engine. In this protocol, the buyer uses digital public money to make a payment, with immediate finality, directly from buyer to seller, resulting in immediate settlement of the trade. The immediate settlement in the DvP results in a trade at internet speed, without involving a broker a custodian on any other intermediary, at effective zero marginal operational costs and without liquidity and other risks.
Danqing Hu
Digital public money (DPM) is a digital form of central bank money, accessible to the public for general use. DPM bears important distinctions from a Central Bank Digital Currency (CBDC). We present a novel DPM scheme in which central bank issues DPM accessible to firms and households, with commercial banks as DPM distributors. Unlike the existing banking model, in which commercial banks take up both roles of money creator and credit distributor, this DPM scheme segregates the two roles specifically, with central bank as the sole money creator and commercial banks as credit distributors. Money creation takes place on, and only on, the central bank balance sheet. As money creator, central bank issues DPM by extending central bank loans (CB loans) to banks based on capital adequacy rule. As credit distributors, banks extend loans and dishoard DPM to customers based on their knowledge of customers. Banks are funded by termed CB loans, instead of demand deposits, which takes away a considerable portion of liquidity risk. The central bank is in turn funded by DPM, as long as firms and households are holding DPM, a claim on the central bank. As liquidity transformation takes place on the central bank balance sheet, and DPM is the most liquid monetary claim, bank run is eliminated by design.
- Download A novel Digital Public Money (DPM) scheme (PDF, 725KB)
Eduard de Jong
Over the last 30 years most financial services moved to the digital realm using centralised account ledgers operated by commercial entities. These digital form of money bring credit risk, imply the use of third party in-frastructure with single points of failure, exclude parts of society and struggle to protect privacy. Clearly, there exists an as yet unmet need for a digital form of money that does no suffer from these defects. This pa-per meets that challenge. It presents a robust, distributed, digital system to implement a digital bearer payment instrument: digital public money (DPM). It shows how DPM, based on a unique technology, aggregating receipt tokens (ARTs), is a form of money accessible to all for a wide range of payments. DPM is better than cash or bank accounts in meeting the needs of the digital age: it supports both online and offline payments, sub-second instantaneously transactions, protection against impersona-tion fraud, resilience, high transaction capacity and support for concur-rently receiving and making payments. No proposal currently discussed for a CBDC can bring those benefits in this unified way to all in society. As digital public money, the monetary value as DPM is issued by the central bank. The central bank plays a key role in ensuring integrity of the issued money and protecting its value in transit between payer and payee. The central bank also assures direct ownership of DPM by provi-sioning users with the essential secure operational part of a digital bearer payment instrument. Ten different use cases are described to highlight how different players in the economy can specifically benefit from using DPM.
- Download Cash: The Once and Future King (PDF, 896KB)
Notes
There is a growing requirement for Digital Public Money that is managed for the public good. Private companies have demonstrated the convenience and utility of digital money, but as society becomes increasingly digital, the limitations and risks of Private Digital Money are evident. Offline E-cash, issued and managed by a central bank, is the solution.
- Download Offline E-cash for Digital Public Money (PDF, 848KB)
- Download E-cash with Offline Store of Value for Digital Public Money Offline Payment (PDF, 409KB)
Simon Youel
This paper uses Hyman P. Minsky’s institutional analysis of money and banking to contribute to current debates on central banking and the future of money. It adopts a “money view” in which central banking is understood as the management of Minsky’s “survival constraint” — the requirement that financial institutions settle obligations in central bank money — through a balance of elasticity and discipline. Recent developments in the Bank of England’s operating framework, including the transition from abundant to ample reserves, expanded collateralised lending facilities, and greater emphasis on the pre-positioning of collateral, are assessed as a partial rediscovery of Minskian principles centred on the discount window and the supervision of financing structures. The paper further examines the tension identified by Minsky between the banking system’s role in providing safe and sound means of exchange and its role in financing the capital development of the economy, alongside the potential for institutional innovation to resolve this tension. It concludes that ongoing changes in monetary architecture strengthen the case for a renewed “money-credit constitution” governing the relationship between central banks, banks, non-banks, and new monetary technologies.