Advances in digital technology have transformed people’s lives in recent decades. But large swathes of the financial system are stuck in the past. Many transactions still take days to complete and rely on time-consuming clearing, messaging and settlement systems and physical paper trails. Improving the functioning of the financial system is thus an important public policy objective. But building a financial system fit for the future requires a vision for what we want to achieve.
In a recent paper, general manager of the Bank for International Settlements (BIS), Agustín Carstens, and researcher Nandan Nilekani propose the concept of the “Finternet” as a vision for the future financial system: multiple financial ecosystems interconnected with each other – much like the internet.
The Finternet would be designed to empower individuals and businesses by placing them at the center of their financial lives. Unified ledgers are a promising vehicle to turn this vision into reality. Grounded on a digital-first approach and leveraging tokenisation, unified ledgers would improve existing financial transactions, but also make entirely new financial products and transactions possible.
They describe the economic rationale for the Finternet as well as its required technical, regulatory and legal building blocks. In addition, they lay out eight fundamental design considerations that we feel should be a core part of the future financial system.
Findings identify three necessary components: an efficient economic and financial architecture, the application of cutting-edge digital technology and a robust legal and governance framework. Unified ledgers are a promising vehicle to deliver on all three. In particular, by bringing together multiple financial assets in a single venue, they could vastly reduce the need for lengthy messaging and clearing processes, thereby delivering more efficient and reliable services for users.