Implications of digitalisation for money, payments and central banks

Signe Krogstrup, the Governor of the Danish central bank Danmarks Nationalbank, gave a guest lecture at Frankfurt School on 19 February 2024 about the implications of digitalisation for money, payments and central banks. The event, which was met with great interest among students and financial industry executives, was hosted by Professor Jens Weidmann and Professor Emanuel Mönch.

Signe Krogstrup’s guest lecture centred around the “five C’s”: Cards, Cash, Cyber, Crypto and Central Bank Digital Currency (CBDC):

• Cards and other digital means of payment are on the rise
• Cash is still needed although its use for payments has declined
• Cyber security is increasingly important
• Crypto-based technology gives rise to new types of money and products – and new risks
• Some central banks are looking onto issuing so-called CBDC

By giving a very brief overview over the history of money, she started with a definition of what money is – trust and convenience. She then continued to cover digital and technological developments in money and payments, and implications for the fundamental questions of trust in money, financial stability and robustness of our payments infrastructure. The landscape of money and payments is constantly evolving. In the past decades, money and payments have increasingly moved from banknotes and coin to digital bank deposits with associated card and app payments in many countries, with Denmark being a early mover.

“In the past five years alone, I stopped carrying cash, got rid of my physical wallet, and largely stopped visiting my bank except online. I have instead added several new types of digital means of payment to my accounts and phone. I am far from being a unique case. Large parts of the Danish population are following this trend.” Signe Krogstrup, Governor of Danmarks Nationalbank

There are important advantages to the increasing use of cards and other forms of digital payments. However, developments also bring up concerns, notably about the declining use of cash, the trust in money and the robustness of the payments infrastructure. Moreover, cyber security has become increasingly important. Meanwhile, crypto-based technology is giving rise to new types of assets that may or may not become more broadly adopted. And finally, some central banks are considering introducing central bank digital currencies (CBDC).

Signe Krogstrup concluded her lecture by noting that we are in the midst of an ongoing digital transformation of money and payments, characterised by the five C’s mentioned. While technology has changed the nature of money throughout history, one constant has remained, namely that money has three attributes – safe store of value, medium of exchange and unit of account. It is the responsibility of central banks to ensure these attributes, so that money and payments can function as the backbone of a well-functioning economy.

The guest lecture was followed by a questions and answers session, and the attendees continued their discussions at a reception with snacks and drinks.