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Commercial Bank Money to Retain the Most Users; Despite Introduction of New Forms of Money

As the Covid-19 pandemic caused a worldwide shift away from the use of physical money, commercial bank money was one of the main benefactors, seeing a significant increase in its use. This money, held in a bank account and still redeemable in physical cash, is now by far the most prevalent form of digital money. Meanwhile, a number of other new forms of digital money have come into play, although none will topple the bank money monopoly, predicts Moody’s Investors Service.

Mobile money, Central Bank Digital Currencies (CBDCs), stablecoins, and cryptocurrencies have all been thrust into the spotlight in the last few years; receiving both good and bad publicity. The wide range of offerings now being offered is set to fragment the money landscape as every offering sees varying levels of adoption. However, long-standing trust in central bank-issued and commercial bank money could see them remain the most used types of money, according to the report on ‘DeFi & Digital Assets‘.

Although this may suggest that other forms of money may struggle to gain, and retain, users – Moody’s Investors Service suggests that new payment solutions could support, rather than supplant, the use of commercial bank offerings. Instant payment systems, digital wallets, and tokenised deposits could move this money faster, and cheaper; making them more convenient. However, these innovations also pose new challenges for banks.

New forms of money may well be able to capitalise on financial institutions being too slow to move. Many have been slow to commercialise instant payment services across the world. There is a struggle to monetise
these payment services without having a negative impact on existing revenue streams.

At the beginning of 2022, only 11 per cent of all euro credit transfers in the EU were instant, causing the Commission to adopt a legislative proposal to accelerate its rollout.

CBDCs are the future. Or are they?

CBDCs could potentially provide the most likely form of money to best challenge commercial bank money. At first glance, it appears as though this is the safest form of money. Unlike commercial bank money, it doesn’t rely on deposit insurance to maintain public confidence.

However, recent CBDC rollouts have seen limited success. For instance, only 0.5 per cent of Nigerians used the country’s CBDC, the eNaira, in October 2022, and such usage has not significantly improved since, even though the country is struggling with cash shortages.

December 2022 saw a former official of China’s central bank indicate disappointment that the country’s digital yuan was seeing little use. Chinese city governments gave away millions worth of digital yuans as subsidies and consumption coupons during the holiday season to promote adoption. Still, some Chinese civil servants will soon receive their salary in digital yuan.

Overall, the success of any type of money, commercial bank money; CBDCs; stablecoins; or cryptocurrencies, in the future digital money ecosystem will depend on its ability to satisfy the three fundamental functions of money:

  1. Medium of exchange
  2. Store of value
  3. Unit of account


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