Bank of England staff paper models monetary singleness under private digital money and highlights stabilising roles for cash and reserves

The Bank of England published Staff Working Paper No. 1,174, presenting an analytical framework for assessing “singleness of money” as digital payments evolve and privately issued digital money proliferates. The paper suggests small deviations from par or a common unit of account can be compatible with efficient outcomes, but warns that inefficient, fragmented equilibria become more likely when new private monies are issued by entities with business models and backing assets that differ materially from incumbent financial institutions; it also identifies cash and central bank reserves as stabilisers. The model has banks choose both the unit of account for their liabilities and whether those liabilities can circulate as a medium of exchange, including whether cross-bank transfers are permitted and what transfer fees apply. Where units of account diverge, interbank transfers create additional feasibility constraints, which can lead banks to scale back issuance, impose interbank transfer fees, or restrict interoperability, with higher relative price volatility and more divergent asset portfolios increasing the risk of outcomes such as local-only circulation. In a discussion of policy tools, the paper notes that mandating a common unit of account can remove incentives to charge interbank transfer fees, but may also force suboptimal outcomes if it tightens issuers’ promise-keeping constraints. Central bank reserves are framed as promoting a consistent asset base across issuers, while cash can act as a backstop by enabling interoperability through central bank money; the working paper is published to elicit comments and does not represent Bank of England policy.