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Reserve-backed tokens : A money for the future?
Journal of Payments Strategy & Systems,
18
(2),
139-158
(2024)
Abstract
Exactly what form the money of the future will take remains an open question. Central bank digital currencies (CBDCs), tokenised deposits and stablecoins have been discussed as potential candidates. This paper argues that reserve-backed tokens (RBTs) — backed solely and fully by central bank reserves — also represent a credible solution. RBTs pose a unique combination of benefits. Notably, they are safer than, and can crowd out, the unstable breeds of stablecoins. They can adopt a more flexible design than retail CBDCs and thus foster greater competition and innovation. Furthermore, compared with bank deposits, RBTs are immune to runs and are unencumbered by legacy features. Naturally, there are attendant risks and unknowns, but this paper argues that careful design and gradual rollout would help harness the benefits of RBT while mitigating the risks.
Keywords: CBDCs; stablecoins; tokenised deposits; crypto; central bank reserves; narrow banks
The full article is available to subscribers to the journal.
Author's Biography
Tirupam Goel is a senior economist in the Monetary and Economic Department of the Bank for International Settlements. Tirupam’s research and policy work covers a wide range of topics such as banking, financial regulation, CBDCs and digital money, inflation expectations, and financial inclusion. He holds a PhD in economics from Cornell University, and a bachelor’s and a master’s degree in mathematics from the Indian Institute of Technology (IIT), Kanpur.
