Why do we need digital money? After all, we have digital apps - we can make digital payments from our phones globally whether it be when on holiday or paying for goods and services as a business. But as McKinsey has estimated: “Global cash usage now stands at 80 percent of 2019 levels and continues to decrease at 4 percent a year. The $26 trillion in payments still made in cash represents a massive opportunity for digitisation.” Currently, our payment infrastructure is electrified, not truly digitised - hence, regulators are offering ‘e-money’ (not ‘d-money’) licenses. When we talk about digital payments today, we are often referring to electronic transfers that still depend heavily on traditional banking systems, processes and rails. These methods, such as cheques, debit cards and wire transfers, rely on cash being deposited into a commercial bank which means that the depositor (you and me) essentially becomes a creditor to the bank, trusting it not to fail. Certainly, the emergence of digital currencies signifies a pivotal shift in how transactions are handled; consider them as digital forms of cash, without any physical attributes. And, unlike traditional payment systems that depend on banks as intermediaries, digital currencies support direct transactions between parties. This eliminates intermediary and counterparty risks, so reducing costs, improving operational efficiency and enabling the financial sector to be more inclusive. Moreover, the misconception that our current systems are adequate fails to recognise these nuanced but crucial differences; as technology evolves so, too, must our understanding of what true digital transformation in payments can offer.
Digital/programmable currencies such as tokenised deposits, stablecoins and CBDC’s (although 'pegged' might be a more accurate term) present a new way of making payments. And, whilst these might not be adopted universally, they offer significant advantages for those who do use them. Transparency stands out as a major advantage; digital currencies deliver clear, real-time transaction records, which helps build trust in the financial system. Without doubt, maintaining transparency is crucial for upholding confidence in financial markets and increased openness in financial services enhances trust between consumers, regulators and product providers. Digital currencies further promote competition within the payments industry, with the entry of new players into the market forcing established banks and financial institutions to innovate - which benefits consumers through enhanced services, reduced costs and supports financial inclusion. The global payments sector is notably nearing a transformative shift; a report from McKinsey indicates that payments now cost more than $2.2 trillion annually with estimates suggesting they will surpass $3.2 trillion by 2027. And this notable rise underscores both the challenges and opportunities for innovation in payment systems. FinTech firms, neo banks and challenger banks are emerging in response to this expanding market, using innovative technologies to deliver more efficient and cost-effective payment solutions, signifying a broader trend towards digitalisation in financial services and the economy as a whole.
Source: Teamblockchain
Meanwhile, tokenisation often gets confused with cryptocurrencies, but it is much more than that - whilst blockchain technology underpins cryptos, its potential extends far beyond the digital coin market. Tokenisation can digitise a broad spectrum of assets - equities, debt instruments, real estate, commodities and even derivatives. To put things in perspective, according to CoinGecko, crypto assets are a mere rounding error since, although there are over 15,000 cryptos worth $3.5trillion, this is significantly dwarfed by the $2.2 quadrillion value of other asset classes. The promise of tokenisation lies in its ability to create digital representations of these tangible assets, enabling a range of efficiencies and innovations. Larry Fink, CEO of BlackRock, has highlighted this potential in recently remarking that, whilst Bitcoin ETFs are a significant first step, the future lies in the tokenisation of every financial asset. Furthermore, his vision points towards a transformative shift in financial markets with highly regulated asset managers already embracing tokenisation. Institutions, such as Abrdn in the UK, Franklin Templeton and State Street in the US and Amundi in Italy, are pioneering digitised versions of traditional money market funds.
These funds offer the advantage of 24/7 trading and independent pricing by market makers, rather than the outdated once-a-day trading windows and pricing by asset management firms themselves. This innovation not only provides investors with greater flexibility, auditability and fairness but also enhances the customer duty credentials of these firms. With the evolving market, there is rising pressure to move from semi-annual to monthly distributions for tokenised funds and some asset managers are claiming they can calculate interest due hourly. This situation certainly emphasises the need for improved payment systems as tokenisation becomes more prevalent, and increased use of digital asset tokenisation is likely to spur further innovation in payment technologies. Meanwhile, the Bank of International Settlements (BIS) has shed light on the current state of cash mutual funds and money market funds worth over $9 trillion globally, revealing a significant opportunity for transformation through digitisation. Traditionally, these funds have only been able to give access to funds within two to three working days. However, with the advent of tokenised money market funds, investors and SMEs could enjoy same-day access to their funds whereby enhancing both security and liquidity. Therefore, digitised money market funds present a compelling alternative to traditional bank deposits, offering a more secure and flexible way to manage deposits.
Nonetheless, as ever, there are undoubtably challenges that face the adoption of digital money solutions. Education, or to be more accurate, re-education, is required for many as people often initially associate digital money with cryptocurrencies together with some of the more nefarious actors who have grabbed the headlines in recent years. Regulation is another major challenge, since in many jurisdictions there is a lack of regulatory clarity which forces many regulated financial institutions to be required to wait and not become involved in unregulated activities. Furthermore, there are the inevitable infrastructure challenges of needing to invest in new technology and striving to get old payments rails to communicate with new digital systems. There are no globally agreed standards as well as the ever-present issue of interoperability, i.e. getting different blockchains to communicate and share data. So, as we explore digital payments more deeply, several broader factors come into focus. Programmable money (made possible by smart contracts) represents a significant advancement whereby enabling transactions to occur automatically when certain conditions are met. This functionality can greatly improve both efficiency and precision in financial transactions as well as offering a lower cost alternative when making global payments. Additionally, digital payments offer a ‘digital footprint’ that makes them less attractive to criminals and hence support governments and regulators in reducing the size and impact of the global shadow economy. Moreover, unlike physical cash in your pocket, digital currencies accessible via a digital wallet on your mobile phone can potentially generate interest, offering a new way to enhance customer value.
Hence, the evolution toward digital money represents not merely a transformation in how payments are made, but a seismic shift in the very infrastructure of our financial systems. Misconceptions about digital money, regulatory ambiguity and technological fragmentation threaten to delay its progress, yet the possibilities are too significant to ignore. Tokenisation is already redefining asset classes, turning traditional investments into liquid, 24/7 accessible instruments. Institutions such as BlackRock and central banks are paving the way, but the true potential lies in collaboration - across governments, financial entities, regulators and technology providers. This is not simply about updating payment rails or adding convenience for consumers - it is about redefining global finance for the digital age. The real question is not whether we will adopt digital money, but rather how we will manage its adoption responsibly. The challenge for policymakers, innovators and financial institutions is to embrace this transformation whilst ensuring that accessibility, security and equity are at its core. If approached thoughtfully, digital money has the potential to overcome the barriers, democratise finance and unlock economic opportunities for billions of consumers and businesses worldwide.
The future of money is digital, and the future starts now.
This article first appeared in Digital Bytes (27th of May, 2025), a weekly newsletter by Jonny Fry of Team Blockchain.