And a few may view paper money – even the Bank of England itself – as archaic vestiges of an old centralised order of payments that will soon be swept aside by a digital, distributed future. And that’s my topic today: the future of money. Specifically, how developments in money and payments technologies could transform our economy in ways good and bad. And how, for the good of the people of the United Kingdom, the Bank of England is helping to manage the potential risks and to realise the promise of the future of money. What is money? In The Wealth of Nations, Adam Smith defines money by the roles it plays in society, in particular, how well it serves as:  -  A store of value with which to transfer purchasing power from today to some future time;  -  A medium of exchange with which to make payments for goods and services; and  -  A unit of account with which to measure the value of a particular good, service, saving or loan. These functions of money operate in a hierarchy (Figure 2). There are many assets that people view as stores of value — houses, for instance — that are not used as media of exchange. By comparison, an asset can only act as a medium of exchange if at least two people are prepared to treat it as a store of value, at least temporarily.
That paper £ note contains sophisticated counterfeit protections ranging from holographic images to ultraviolet features, which will be further enhanced when we switch to a polymer £ in 2020;  -  12  The foundation of the payments system, RTGS, which processes over £ billion of bank-to-bank payments per day to the highest standards of efficiency and resilience;  13  8  The data are for 2016. To note, banknotes accounted for 45% of transactions in 2015, and as such there was a 5 percentage point fall year-on-year which may be related to increased use of cards and online payments. 9 See McLeay, M., Radia, A., and Thomas, R., (2014), Money Creation in the Modern Economy, Bank of England Quarterly Bulletin 2014 Q1, which notes that the reality of how money is created often differs from that found in standard textbooks, and rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits. 10 Although it does not target monetary aggregates per se, the Bank of England conducts monetary policy to ensure the amount of money creation in the economy is consistent with low and stable inflation. In normal times, the Bank of England implements monetary policy by setting the interest rate on central bank reserves. In exceptional times when interest rates cannot be lowered further, the Bank implements monetary policy by purchasing assets, which has the by-product of increasing the central bank reserve holdings of private banks.