Why central banks are key to electronic money

**Peter Thal Larsen** (0:03)
We've talked from time to time on this show about the debates about digital money. In the past, I've been a bit reluctant to give them too much oxygen because it seems to me there's an awful lot of hype and hot air for what is still relatively little actual activity. But two things have changed. The first is that the US has passed legislation, the Genius Act, which authorizes companies to issue stable coins, which are tokens backed by a dollar. It's debating another law known as the Clarity Act, which could make those stable coins more appealing to users. This is no longer a mostly theoretical discussion.
The second thing that's changed is that central banks are spending a lot of time debating this topic. Central bankers are making speeches and publishing papers about blockchain, about stable coins, about tokenized deposits, and about the impact of all of this change and innovation on the financial system. This week on The Big View, we're going to talk about digital innovation in money and all its forms. It's what we do at Reuters Breakingviews. We tap our best sources around the world for fresh insights into the biggest stories in finance, business, and economics. I'm your host, Peter Thal Larsen.
We've got the ideal guest to guide us through this topic. His name is Gaston Gelos, and he's the Deputy Head of the Monetary and Economic Department at the Bank for International Settlements in Basel. It's kind of the central bankers, central bank as it's known in the shorthand. He's also Head of Financial Stability Policy at the BIS. He joined the BIS in 2023 from the International Monetary Fund, where he served very senior roles, and his research has focused mainly on financial stability, monetary policy, and capital flows.
The BIS has played a very active role in the debate about innovations in finance and particularly stable coins and the application of blockchain technology. Last week, it devoted a chapter of its annual report to the topic called Anchoring Trust in Money, Innovation Beyond Stable Coins. There's a link to that paper in the show notes. Gaston Gelos, welcome to The Big View.

**Gaston Gelos** (2:14)
Thank you. Thanks for having me here, Peter.

**Peter Thal Larsen** (2:17)
Yeah, there's a lot for us to talk about. I thought I would start with a somewhat practical question, which is really why the Bank for International Settlements and all these other central banks are devoting so much attention to this question of digital money.
I think the global market for stable coins, I believe you have a number in the report, is about $320 billion, which sounds like a lot, but there's $19 trillion on deposit at US commercial banks. The Bank of England last week published a paper about sterling denominated stable coins. I think that market is $32 million out of the $320 billion. There's an element to this, which is why are we all spending so much time talking about this technology when the sums of money at the moment are so small.

**Gaston Gelos** (3:09)
Well, thank you. Well, I would say that first we are not only or not primarily talking about specific forms of money, particular stable coins. We are really interested in how the developments in technology that can improve finance, how they can be made useful for everyday people so that we can improve our financial system in ways that takes advantage of the possibilities that these technologies bring while kind of at the same time not introducing new risks and not throwing away the baby with a bathwater, so not to do away with all the good things that our current system has and which has been evolved over many centuries.
Now, it's true that some of these stale coins, the market has stagnated somewhat after initial growth. But of course, there are people that predict future growth and faster growth. So we also have to prepare for what could come and think about possibilities ahead and conceptually think through what could happen if.

**Peter Thal Larsen** (4:38)
Yeah, if that takes off. I guess it's better to have that conversation now than in 10 years' time if it's grown very large.
One of the things that's helpful, I think, about this discussion and the technology is that it forces us to really think through what is money. I think we've had this system where we took money for granted, which I guess is the whole point. But I guess it's forced everyone to really boil down, what is the essence of money and what defines money and how do we organize it. I mean, you have some helpful concepts in the report about how to think about that. What would you, in a nutshell, what would you say, what's the essence of money?