In a recent paper, the General Manager of Bank for International Settlements (BIS) and the Indian entrepreneur (Infosys co-founder) Nandan Nilekani have laid out a vision for the Finternet, which is proposed to be a network of multiple financial ecosystems, much like the internet. This concept envisions a future where individuals and businesses would be able to seamlessly undertake transactions and interactions across various platforms and services and transfer any financial asset they like, in any amount, at any time, using any device, to anyone else, anywhere in the world.
Finternet would pave the way for a user-centric, unified, and universal financial ecosystem brought into the digital era that is inclusive, innovative, participatory, accessible, and affordable, and leaves no one behind. The envisioned system leverages innovative technologies such as tokenization and unified ledgers to dramatically expand the range and quality of financial services. Such an integrated system aims to foster greater participation, offer more personalized services, and improve speed and reliability, all while reducing costs for end-users. In this paper, the authors identify three necessary components for Finternet: 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. The paper also provides a blueprint for how key technical characteristics like interoperability, verifiability, programmability, immutability, finality, evolvability, modularity, scalability, security, and privacy can be incorporated and how varied governance norms can be embedded.
However, delivering on this vision of Finternet would require proactive collaboration between public authorities and private-sector institutions. A basic starting point is that existing laws and regulations should apply to participants and assets in the Finternet and that jurisdictions do not need to create an entirely new bespoke legal framework to deploy unified ledgers. Nonetheless, the development of unified ledgers does raise novel legal and regulatory issues. To this end, the paper emphasizes that unified ledgers and related infrastructure should not provide venues to circumvent laws or to engage in regulatory arbitrage. Another fundamental is the question of whether central banks have the authority to issue tokenized central bank money. Beyond questions of issuance, the legal status of the tokens that exist on unified ledgers requires clarification.
The paper notes that most of the technology needed to achieve this vision for Finternet exists and is fast improving; however, turning this vision into reality requires experimentation. Only then can we have a full measure of the challenges and the best strategies to overcome these challenges. It is also noted that many central banks are engaged in this necessary process of trial and error. For instance, the Brazilian central bank BCB is exploring the Drex platform, which is a unified ledger where wholesale tokenized central bank money, deposits, e-money, and treasuries coexist. Additionally, the Bank of Korea, the Monetary Authority of Singapore, and seven central banks have teamed up with the BIS Innovation Hub in Project Agorá to investigate how tokenized bank deposits can be seamlessly integrated with wholesale central bank digital currencies (CBDCs) on a public-private platform.
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