Using our research we have arrived at four plausible and distinct scenarios to describe the future of money – Highest freedom, Village economies, United in prudence and Government coin. These are not predictions, but each is intended to support a wider discussion around the long-term outlook for money in all its forms.
The nature and contours of this future depend in large part on how stakeholders respond between now and 2035 to the trends and drivers that continue to influence money’s evolution. In particular, as noted in our previous article [‘Developing scenarios for the future of money’], these include the willingness of society to adopt digital assets as the market matures and how regulators respond to each new wave of payments innovation.
In discussions with our panel of experts, over 65% expect use and adoption of digital assets to continue to extend and mature, and over half of those backed the ‘Government Coin’ scenario as the most likely future. In this scenario we propose a future where digital assets become firmly established, growing in importance and ubiquity as we move closer to 2035. While adoption and usage levels will vary by country, digital assets will become globally relevant. It is advisable for firms to plan for a future where digital assets become mainstream.
In the first half of 2023, the Atlantic Council reported that 114 countries, representing more than 95% of global GDP, were exploring their own CBDCs1. This was up from just 35 in 2020, with around half now said to be in advanced phases of development, piloting or even launch.
Clearly, the question here is not whether CBDCs will become ‘a thing’. Rather, it is when and whether any nation can ignore the risk of being left behind by the accelerating development of CBDCs?
We suspect not, and this revolution has profound implications for consumers, corporates, governments and financial institutions, all of whom must decide whether and how to engage with CDBCs, and/or – perhaps for reasons of assumed anonymity or in search of a different user experience – turn to alternative tokens.
Much will depend on how smoothly the implementation is managed by different countries, as well as the extent to which their citizens feel able to trust this new form of money and the institutions, like central banks, that are leading the rollout and continuing as the custodians of their money. We do not expect longstanding fears around digital assets concerning their volatility, long-term value, privacy and resilience to fraud and cyberattack to simply evaporate overnight. However, we do believe that each of these concerns will be addressed over time, helped by the continued maturing of technology and its use to both create opportunity and improve risk management, and the emergence of leading use-cases that demonstrate real-world value and balanced evolution of regulatory frameworks. In this way, CBDCs could be the bridge to bringing the future of money to life.
However, we are still some way off from 2035, a future shrouded in uncertainty and likely to be shaped by a range of potent forces. Nevertheless, peering into the future, we can make out the contours of the road ahead, at least for the next 3-5 years.
Several near-term trends consistently emerged throughout our research, with high likelihood.
Market participants should consider adopting a proactive approach to prepare for visible near-term changes. And many already are. These changes include:
We believe these near-term changes describe a realistic backdrop for the future of money over the next five years. However, the pace of delivery and potential of these changes could be negatively impacted by an opposing set of challenges and inhibitors. Some of these inhibitors are outlined below, each of which could blunt the impact of the forces shaping the future of money, and slow progress. However, mitigating actions can be taken, and should be considered as future strategies for the industry are put in place.
Inhibitors and mitigants
These factors could result in less radical change that takes longer to materialise. Equally though if standards are agreed, security enhanced and trust forged, the opposite could be true. What is clear is that the interplay of these forces – the drivers and the drag factors – both need to be considered, since they will influence the shape of the adoption curve for digital assets and other future payments innovations and could fundamentally impact the future of money that emerges by 2035.
Coming next: We consider the ways in which the future of money will impact today’s financial services firms, exploring the implications for key areas like banking and how the future of money promises to bring change that impacts more than just the nature of the cash in your wallet.
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1Central Bank Digital Currency Tracker (Atlantic Council, https://www.atlanticcouncil.org/cbdctracker/). Data accessed on 24th March 2023.