Founder
July 21, 2025
24 min read
The global financial system stands on the brink of a structural transformation driven by the parallel and accelerating evolution of two distinct forms of digital money. On one side, sovereign states are developing Central Bank Digital Currencies (CBDCs), a government-sanctioned, risk-free digital representation of fiat currency; on the other, the private sector has pioneered stablecoins—market-driven digital assets that have become a foundational element of the rapidly growing on-chain economy. The convergence of these two realms—the state-controlled “sovereign layer” and the market-oriented “application layer”—heralds a future state of “monetary singularity,” in which public and private digital currencies are deeply integrated into a new hybrid monetary architecture.
This article provides a comprehensive analysis of that convergence by defining the architectural principles of each layer, examining the regulatory forces compelling their synthesis, and modeling the systemic implications for global financial order. The future of money will be a blend of these two layers: stablecoins, backed 1:1 directly by the wholesale CBDC of a central bank, will combine the innovation speed of the private sector with the trust and stability of the public sector, creating a new equilibrium that satisfies both regulators and markets.
The financial landscape is undergoing a transformation that redefines what “money” means. At the center of this shift are two seemingly rival forces: Central Bank Digital Currencies (CBDCs) issued by governments and stablecoins created by the private sector. The traditional narrative often frames these two forces in a zero-sum competition, a battle in which one must inevitably displace the other. But this view overlooks a deeper and more complex reality. Rather than a simple rivalry, we are witnessing an inevitable synthesis—one that creates a hybrid financial architecture combining public trust and private innovation in unprecedented ways. We may call this ultimate state “Monetary Singularity.”
This new architecture will consist of two interrelated layers:
The Sovereign Layer (Trust Layer). This is the foundational layer controlled by central banks. Its currency is the CBDC, which forms the bedrock of a national economy. By providing final settlement, legal certainty, and financial stability, it serves as a digital manifestation of the state's monetary sovereignty. It is the system’s unshakeable “trust layer.”
The Application Layer (Innovation Layer). This is the fast, flexible, and user-centric layer upon which global commerce, e-commerce, and innovative financial services such as Decentralized Finance (DeFi) flow. The dominant currency of this layer is the privately issued stablecoin, representing the dynamism, competitiveness, and—perhaps most importantly—permissionless innovation of the private sector.
Monetary Singularity is not merely the coexistence of these two layers, but their deep interweaving. In this vision, the ultimate form of stablecoins—those most secure, robust, and regulatorily compliant—would no longer hold reserves in potentially risky assets such as commercial bank deposits or other securities. Instead, they would be backed 1:1 directly by a central bank’s wholesale CBDC (wCBDC).
This hybrid model offers the best of both worlds: the agility and user-centric design of the private sector, combined with the absolute safety and certainty of public money. It is a natural response to regulatory pressures and market demands and represents the next logical evolution of the monetary system for the digital age.
As states enter the race for digital currency, they are not doing so merely to modernize an outdated payment infrastructure. The development of major CBDC projects such as the European Central Bank’s (ECB) Digital Euro and the People’s Bank of China’s (PBoC) e-CNY is fundamentally a strategic move. These projects are designed as essential “trust layers” aimed at re-establishing monetary sovereignty in an increasingly digital and fragmented world.
The driving force behind CBDC development is primarily a defensive response to two perceived threats: the decline of physical cash, which erodes the direct link between citizens and central bank money; and the rise of powerful, privately and foreign-controlled digital payment systems.
The Digital Euro. For the ECB, the central motivation is to preserve the role of central bank money as the “monetary anchor” of the payment system in the digital age. As cash transactions decline, the ECB fears a future in which all digital payments are conducted through commercial bank money—or more worryingly—privately issued stablecoins or currencies controlled by non-European Big Tech firms. Facebook’s proposed Libra (later Diem) stablecoin triggered this concern by highlighting the potential of a private, global currency to challenge the primacy of sovereign fiat. As a result, the Digital Euro has been framed as a geopolitical tool to preserve Europe’s “strategic autonomy” and enhance the “resilience” of its payments ecosystem against reliance on a handful of non-EU solutions such as global card networks.
e-CNY (Digital Yuan). Similarly, China’s e-CNY stems from a desire to reinforce monetary sovereignty, though its focus is more domestic. The primary aim is to reduce systemic risk posed by the duopoly of private platforms—Alipay and WeChat Pay—that dominate China’s digital payment landscape. By offering a government-backed alternative, the PBoC seeks to reassert state control over critical financial infrastructure, prevent market monopolization, and gain real-time visibility into economic transactions to enhance monetary policy effectiveness and combat financial crime. Internationally, the e-CNY is positioned to promote the use of the renminbi in cross-border trade, especially in initiatives like the Belt and Road Initiative (BRI), which also aims to reduce dependence on the US dollar.
In both cases, the common thread is that CBDC development is a strategic policy response to perceived threats to the state’s control over the monetary system. Technology is a means to a political end: to ensure the state remains the ultimate issuer of the unit of account and the final settlement asset in the digital economy.
To achieve these strategic objectives without inflicting disruptive damage to the existing financial system, both the Digital Euro and the e-CNY have adopted a “two-tier” or “intermediated” architecture. This design is a deliberate and critical policy choice.
Tier 1 (Wholesale Layer): The central bank (ECB or PBoC) is responsible for core functions such as issuing the CBDC, maintaining the central ledger, and operating the wholesale settlement system that connects participating institutions. The CBDC itself is a direct liability of the central bank and carries its full faith and credit.
Tier 2 (Retail Layer): Commercial banks and other authorized Payment Service Providers (PSPs) are responsible for all customer-facing activities. These include distributing the CBDC, providing digital wallets, onboarding customers (including Know-Your-Customer and Anti-Money Laundering checks), and developing innovative payment services.
This model deliberately avoids a “single-tier” system in which citizens would hold accounts directly with the central bank. The rationale is twofold. First, it prevents the “disintermediation” of the commercial banking sector. Banks rely on deposits to lend into the real economy; a mass migration of deposits to the central bank would cripple their ability to create credit and destabilize the financial system. Second, it leverages the existing expertise, infrastructure, and customer relationships of commercial banks, which are far better equipped than a central bank to deliver retail services. This public-private partnership is designed not to replace the current monetary system, but to renew it for the digital age.
The ultimate function of a CBDC is to serve as a foundational “trust layer” for the digital economy. This goes far beyond being merely another payment method. It is achieved through a specific combination of design features that establish the CBDC as the ultimate risk-free settlement asset. Above all, a CBDC is a direct liability of the central bank, making it the most secure form of digital money; it is equivalent to physical cash and free from the credit and liquidity risks associated with commercial bank deposits.
To reinforce this role, essential features are being incorporated, such as legal tender status to mandate universal acceptance and offline capabilities that allow transactions even without internet access—both of which are vital for financial inclusion and system-wide resilience. However, this commitment to privacy is carefully distinguished from anonymity. Both the Digital Euro and the e-CNY projects have explicitly stated that full anonymity akin to cash is incompatible with modern AML/CFT regulations. This has led to a core design compromise: “managed anonymity” or “anonymity for low-value transactions and traceability for high-value ones.”
Most importantly, CBDCs are being designed as means of payment, not stores of value. To prevent destabilizing outflows from commercial bank deposits, they will include holding limits (for example, a range of €3,000–4,000 has been proposed for the Digital Euro) and non-interest-bearing conditions. This design choice reinforces the CBDC’s role as a foundational payment instrument—a public good upon which the private sector can build innovative new services.
While states are methodically designing their sovereign layers in a top-down fashion, a vibrant, market-driven “application layer” has emerged organically from the bottom up. This layer is dominated by privately issued stablecoins, most notably USD Coin (USDC) and Tether (USDT). Initially created as niche instruments for crypto traders, these assets have evolved into a powerful and globally significant infrastructure for permissionless digital commerce, reaching a level of scale and integration that state-led CBDC projects have yet to approach.
The growth of stablecoins has been explosive. Originally conceived as a way for crypto traders to hedge against the volatility of assets like Bitcoin without exiting the digital ecosystem, stablecoins have become the cornerstone of the on-chain economy. Their combined transaction volumes have surpassed those of major traditional payment networks, with trillions of dollars in value settled annually. The market is led by two giants with differing strategies:
Tether (USDT), the first mover, has established dominance through deep liquidity and widespread integration across global cryptocurrency exchanges.
USD Coin (USDC), issued by Circle, has pursued a strategy of transparency and regulatory compliance, conducting regular audits of its reserves and engaging proactively with policymakers. This has made it the preferred stablecoin for institutions and enterprises seeking a lower-risk entry point into the digital economy. Its core functions now go far beyond trading, serving as a primary instrument for cross-border payments, e-commerce, and as a fundamental collateral asset in the world of Decentralized Finance (DeFi).
The rapid adoption of stablecoins can be attributed to several key competitive advantages over the more cautious and centrally orchestrated CBDC projects. These advantages stem from the permissionless and globally oriented nature of the technology on which stablecoins are built.
Stablecoin transactions offer a radical improvement over traditional financial rails. Payments settle on a blockchain almost instantly (typically within seconds or minutes) and are available 24/7. The cost to the user is usually a small network fee (“gas fee”), which can be just a few cents. This stands in stark contrast—and as an advantage—compared to the 1.5% to 3.5% fees charged by credit card networks or the uncertain and often significant costs of international bank transfers. For merchants engaged in cross-border e-commerce, this means a massive gain in efficiency and a direct boost in profitability.
A critical advantage is their native presence across multiple blockchain networks. USDC exists on 23 different blockchains, while USDT operates on more than 14. This enables value to flow seamlessly between different digital ecosystems such as Ethereum, Solana, and Base. Infrastructure like Circle’s Cross-Chain Transfer Protocol (CCTP) further enhances this interoperability by allowing USDC to move securely and natively across chains. This represents a level of interoperability that nationally siloed CBDC projects—primarily designed for domestic use—have yet to achieve.
Stablecoins are not just assets—they are programmable building blocks. They serve as the fundamental collateral and unit of account across the entire DeFi ecosystem. Protocols for lending, borrowing, derivatives, and automated market makers are built to natively interact with stablecoins like USDC and DAI. Through smart contracts, this deep and composable integration enables the creation of complex and automated financial services. This directly contrasts with the current design philosophy of retail CBDCs, which are envisioned as closed-loop payment systems with limited or no programmability to avoid monetary policy complications.
The growth of the stablecoin ecosystem has been a bottom-up, market-driven phenomenon. This has enabled rapid innovation and adoption. A notable example is Shopify’s integration of USDC payments. Through a partnership with Coinbase and Stripe, Shopify was able to offer USDC as a global payment option to millions of merchants with minimal technical overhead. This stands in sharp contrast to the slow, bureaucratic, and politically intensive process of launching a national CBDC.
As internet-based bearer digital assets, stablecoins are inherently borderless. They provide access to a stable, dollar-denominated asset to anyone in the world with internet access and a crypto wallet—without the need for a traditional bank account and bypassing local currency controls or instability.
Yet, this “stateless” nature that grants stablecoins these advantages is also their greatest vulnerability. Their ability to operate across jurisdictions and outside the direct oversight of any single regulator is what makes them efficient—but also a primary concern for policymakers worried about financial stability, money laundering, and the loss of monetary control.
The parallel development of the sovereign and application layers will not continue indefinitely. A powerful forcing function is emerging in the form of comprehensive financial regulation that will fundamentally reshape the landscape for digital currencies. Landmark frameworks such as the European Union’s Markets in Crypto-Assets (MiCA) regulation and the United States’ GENIUS Act are creating a regulatory glove intended to tame the permissionless nature of stablecoins. This process is not merely about imposing rules; it is a strategic maneuver by sovereign states to regain control and push the private application layer toward a necessary and inevitable integration with the state-controlled sovereign layer.
With its stablecoin provisions fully entering into force by mid-2024, the EU’s MiCA regulation is the world’s most comprehensive crypto-asset framework. At its core, it is a defensive strategy designed to safeguard the Eurozone’s monetary sovereignty from the perceived threat of large, foreign currency-denominated stablecoins.
MiCA imposes strict, bank-like requirements on stablecoin issuers. Issuers of E-Money Tokens (EMTs)—the category encompassing major stablecoins such as USDC and USDT—must be authorized within the EU as either a credit institution (bank) or an electronic money institution (EMI). They are required to maintain fully backed 1:1 liquid reserves, with at least 30% held as deposits in EU credit institutions, and these reserves must be segregated and held with a third-party custodian. Most critically, MiCA imposes strict limits on the use of “significant” non-euro-denominated stablecoins. When daily transactions in such a token exceed €200 million, the issuer must halt further issuance and work to reduce its usage within the EU. This rule is a direct and powerful tool to prevent the “digital dollarization” of the European economy.
In contrast to the EU’s cautious and defensive posture, the United States is pursuing a more promotional strategy with the Guiding and Enabling National Innovation for US Stablecoins (GENIUS) Act. This legislation is designed to create a clear federal framework that legitimizes and encourages a private-sector-led ecosystem for dollar-backed stablecoins. The GENIUS Act establishes licensing pathways for “permitted payment stablecoin issuers,” which may include both traditional banks and non-bank entities operating under the oversight of federal banking regulators such as the Office of the Comptroller of the Currency (OCC). The key requirement is that these issuers must fully back their stablecoins 1:1 with high-quality liquid assets such as insured bank deposits, short-term US Treasury bills, or reserves held at the Federal Reserve.
This approach is an explicit geopolitical strategy aimed at expanding and solidifying the global dominance of the US dollar in the digital age. By creating a regulated and trustworthy environment for private companies to issue digital dollars, the US aims to ensure that the dollar remains the primary unit of account and medium of exchange in the on-chain economy. This stablecoin-friendly stance is clearly aligned with strong political opposition to the development of a retail US CBDC, which critics fear could lead to government surveillance.
This transatlantic divide represents a new front in the global monetary competition: while the US leverages its dynamic private sector to project monetary power through regulated stablecoins, the EU deploys regulatory force and a public CBDC project to build a defensive perimeter against this influence.
The regulatory push to ensure that stablecoins are backed by safe and entirely risk-free assets leads to a logical architectural outcome: a hybrid system in which the private application layer is directly anchored to the public sovereign layer. The most sensible and robust model for this “monetary singularity” is one in which regulated private stablecoins are 100% backed by a wholesale Central Bank Digital Currency (wCBDC) held at the central bank. Sometimes referred to as the “synthetic CBDC” model, this architecture offers a sophisticated solution that preserves the strengths of both public and private money.
This model creates a clear division of labor between the two layers of the monetary system, formalizing the public-private partnership.
Layer 1 (Sovereign Layer): The central bank operates a wCBDC platform. This is a permissioned and potentially DLT-based system that provides a risk-free, 24/7 digital settlement asset to a limited number of licensed financial institutions. These participants will include commercial banks and newly regulated “permissioned payment stablecoin issuers.” The wCBDC is the digital equivalent of the reserves that commercial banks currently hold at the central bank. It is a final settlement asset free from credit and liquidity risk.
Layer 2 (Application Layer): Private and regulated entities—such as banks, fintech companies like Circle, or other licensed issuers—issue stablecoins to the public. These stablecoins are liabilities of the private issuer, not of the central bank. They circulate on various public or permissioned blockchains and are integrated into wallets, exchanges, and commercial applications. This is where innovation, competition, and customer-centric services flourish.
This synthetic CBDC model is the logical endpoint of the regulatory pressures previously described, as it elegantly resolves the core tension between private innovation and sovereign control. It offers “the best of both worlds.” Since all digital money in circulation is fully backed by a direct claim on the central bank, the system benefits from the absolute trust and stability of the sovereign layer. At the same time, it unleashes the innovation, competition, and customer-focused expertise of the private application layer.
The central bank is spared the enormous operational burden, cybersecurity risks, and privacy debates associated with running a full-scale retail CBDC. Meanwhile, the private sector can focus on what it does best: building user-friendly wallets, delivering innovative payment services, and integrating programmable money into DeFi and other next-generation applications.
This architecture provides commercial banks and other financial institutions with a clear and vital role as primary issuers and managers of application-layer tokens, directly mitigating the disintermediation threat posed by a retail CBDC. In essence, the hybrid model does not represent a radical break from the past, but rather a technological evolution of the proven two-tier banking system. The wCBDC becomes the new digital base money, and privately issued, wCBDC-backed stablecoins become the new digital broad money—adapting the enduring public-private monetary partnership to a tokenized, programmable world.
The emergence of a hybrid monetary architecture in which a private stablecoin-based application layer is anchored to a wholesale CBDC public sovereign layer will not merely be a technical upgrade. This new model will redefine the fundamental role of commercial banks, radically restructure the infrastructure that has underpinned global payments for decades, and present a new set of complex challenges and powerful opportunities for the execution of central bank monetary policy.
For commercial banks, monetary singularity poses an existential question: Will they evolve to become the primary intermediaries of this new digital ecosystem, or will they be disintermediated—both by central banks and a new wave of agile fintech challengers?
The most widely discussed risk is “disintermediation”: a large-scale outflow of funds from commercial bank deposits to fully safe, risk-free digital money issued by the central bank. This could erode banks' low-cost deposit funding base, leading to higher funding costs, lower profitability, and a contraction in credit supply to the real economy. Of particular concern is the risk of "rapid disintermediation" or a "digital bank run"—a fast and large-scale shift from bank deposits to CBDCs during a period of financial stress, which could make the banking system inherently more fragile.
However, the two-tiered hybrid architecture—where private stablecoins are backed by wholesale CBDC—is explicitly designed to mitigate these risks while preserving a central role for commercial banks. In this model, banks’ functions shift from risk transformation to service provision. Since the value-storage function is effectively de-risked and nationalized, banks no longer compete on guaranteeing the safety of deposits but rather on delivering the interfaces and value-added services built around them.
This opens up new opportunities for banks to become “licensed payment stablecoin issuers” under new regulatory frameworks, to offer superior digital wallets and personal finance tools, and to serve as critical ramps that connect the traditional financial system with the new tokenized economy.
The current infrastructure for cross-border payments is based on the correspondent banking system, which makes international transactions slow, expensive, and opaque. Monetary singularity—particularly through the integration of private stablecoins with multi-CBDC platforms like Project mBridge—promises to render this legacy system obsolete.
Project mBridge is a joint initiative involving several central banks—including those of China, Hong Kong, Thailand, and the UAE—as well as the Bank for International Settlements (BIS) Innovation Hub. It stands at the forefront of this transformation. The platform allows commercial banks from different countries to hold and transact with the wholesale CBDCs of multiple participating central banks directly, through a single, shared Distributed Ledger Technology (DLT) platform. This creates a peer-to-peer network that entirely bypasses the correspondent banking chain.
The results from the 2022 pilot were transformative: transaction times were reduced from three to five days down to just a few seconds, and cost reductions of 50–60% were demonstrated.
In this new world, the business of cross-border finance is fundamentally altered. The role of payment processing becomes commoditized, while the new high-value activity lies in providing liquidity pools of wholesale CBDCs to facilitate currency swaps on ledgers like mBridge—creating a new, hyper-efficient, 24/7 global FX market built on sovereign money.
The hybrid system complicates the transmission of monetary policy. On one hand, it may create a strong “outside option” for deposit holders, forcing commercial banks to reflect changes in policy rates more quickly—thereby making monetary policy more effective. On the other hand, a structural shift from bank deposits to stablecoins (a gradual disintermediation) could disrupt the traditional credit creation process. Moreover, large and rapid flows between bank deposits and stablecoins could complicate the central bank’s task of managing short-term interbank interest rates.
The most significant impact is on financial stability. The hybrid system introduces a paradox: by solving the run risk on stablecoins (through 100% backing with wCBDC), it may increase the run risk on the traditional banking system. The presence of a completely safe, fully liquid, and instantly accessible digital asset makes uninsured commercial bank deposits appear significantly more risky by comparison. This greatly heightens the threat of “digital bank runs” during times of crisis. Consequently, the focus of financial stability policy shifts away from the solvency of individual banks toward managing system-wide liquidity flows between the traditional banking sector and the emerging digital money ecosystem.
The technical, regulatory, and systemic transformations brought about by monetary singularity will ultimately be evaluated through their impact on individuals’ everyday financial lives and the operations of businesses.
For Ordinary Users: Among the greatest benefits is enhanced security, as funds held in wCBDC-backed stablecoins are completely free from bank credit and liquidity risks. The intense competition within the application layer is expected to lead to better digital wallets and lower transaction costs. Additionally, this new infrastructure holds the potential to increase financial inclusion for the unbanked population through mobile-first solutions.
For Businesses: The most immediate impact will be a sharp reduction in transaction costs as payments shift away from expensive card networks toward low-cost stablecoin rails.
Instant, 24/7 settlement will revolutionize cash flow and working capital management. The programmability of the application layer will enable businesses to automate complex processes such as supply chain financing. Strategically, a frictionless and low-cost global payment system will unlock international markets for SMEs that were previously shut out due to the complexity of correspondent banking.
For Ordinary Users: The primary concern is the erosion of privacy and the potential for surveillance. The ledgers underlying CBDC systems are inherently traceable, creating the potential for citizens’ financial lives to be monitored by the state or corporations at an unprecedented scale. When combined with programmability, this traceability introduces the risk of financial censorship and control; a currency could be used to restrict the purchase of certain goods or create funds with expiration dates.
For Businesses and the Economy: The new system introduces new systemic dependencies. The entire financial system will become reliant on highly complex technological infrastructure. A sophisticated cyberattack or a software malfunction could produce cascading and catastrophic consequences for the entire economy. Furthermore, despite the hybrid design, ongoing disintermediation of banks may lead to a reduction in credit availability—especially for SMEs that depend on traditional relationship-based bank lending.
Ultimately, monetary singularity represents a fundamental societal trade-off. We are potentially exchanging the known credit and liquidity risks of the fractional reserve banking system for the lesser-understood but deeply operational, privacy, and censorship risks of a fully digitized, traceable monetary system. The former is a financial risk; the latter is a political and civil liberties risk.
The convergence of sovereign and private digital currencies is not a distant possibility; it is an imminent reality actively shaped by technological innovation and strategic regulation. This “monetary singularity” promises a more efficient, inclusive, and innovative financial system—but it also presents profound risks to privacy, stability, and the existing economic order. Successfully managing this transition requires a proactive and strategic approach from all stakeholders.
The foremost task is to build public trust. This necessitates the establishment of robust, transparent, and legally binding governance frameworks. Legal guarantees must prioritize strong data privacy protections that clearly define the boundaries of government access to transactional data. International dialogue should be encouraged to develop shared standards for interoperability and regulation. Without such coordination, the digital economy faces the risk of geopolitical fragmentation.
The imperative is to adapt—or risk obsolescence. Banks must accelerate their transformation from risk intermediaries into technology and service providers. This means investing heavily in user experience, developing intuitive and secure digital wallets, and creating value-added services that integrate payments with broader financial management.
The opportunity to build the application layer of the new monetary system is immense. The focus should be on creating user-centric solutions that solve real-world problems—ranging from simplifying cross-border trade for SMEs to building more accessible on-ramps into the digital economy for underserved populations. Fintechs must also mature by embracing the new regulatory reality.
The design of this new monetary system is too important to be left solely to central bankers and technologists. The private sector and civil society must actively engage in the public discourse surrounding CBDCs and stablecoins and advocate for systems that are open by design, interoperable, and built with ironclad privacy protections.
Monetary singularity is not a single event but a deep process of re-architecting. Its final form is still undefined. By understanding the power dynamics and balances at play—and by making conscious, strategic choices—stakeholders can help steer its development toward a future that is not only more efficient, but also more just and free.
The “killer app” of the future of money is not a piece of software—it is a trustworthy model of governance.
