One Money, Many Rails: Keeping Digital Money Fungible

The stability of digital money hinges on maintaining fungibility—the principle that a dollar should be equivalent regardless of the issuer or settlement rail. This stability is threatened by divergence across various forms of digital money, which differ in backing, redemption rights, and legal standing, despite sharing the same nominal value. Forms like stablecoins, tokenized deposits, and Central Bank Digital Currencies (CBDCs) occupy different positions within a money hierarchy based on who owes the money, its insurance status, and settlement finality.
Fragmentation is occurring along jurisdictional lines, sectors (stablecoins, tokenized deposits, CBDCs), and capital markets. For instance, stablecoins dominate crypto settlement, tokenized deposits focus on corporate treasury, and CBDCs appear in wholesale corridors. This divergence creates fragmentation in investor outcomes through differences in instrument, finality, parity risk, regulatory arbitrage, and operational risk. The CFA Institute calls for deliberate action from regulators, standard-setters, issuers, and investors to ensure the singleness of money is an explicit objective across all digital rails.

* Digital money must maintain fungibility where it settles.
* The risk involves digital money denominated in the same currency stopping trading at par across issuers and financial rails.
* A dollar stablecoin, a tokenized deposit, and a CBDC differ in who owes the money, backing, redemption rights, and final settlement.
* A tokenized deposit is a bank liability potentially eligible for deposit insurance up to USD250,000 under FDIC oversight.
* A payment stablecoin is not deposit-insured, and its issuer has no automatic entitlement to Federal Reserve accounts.
* The money-view framework ranks claims by the holder's ability to convert at par on demand, considering credit protection and liquidity protection.
* Jurisdictional divergence exists: 11 jurisdictions have crypto frameworks, five have stablecoin regimes.
* Sectors differ: Stablecoins are bearer instruments on open networks; tokenized deposits are account-based claims; CBDCs appear in wholesale corridors.
* Investor fragmentation occurs across instrument/venue, finality, par risk, regulatory arbitrage, and operational risk.
* CFA Institute recommends regulation based on activity, harmonized standards for parity, and reinforced investor protection.

The analysis reveals a fundamental tension between the potential efficiencies offered by programmable digital rails and the established economic requirement of monetary fungibility. The core pattern emerges from the architecture of finance: systems are built on layered, often siloed, legal and technical frameworks, which unintentionally create non-fungible claims within a single nominal currency. The fragmentation described—jurisdictional inconsistency, sectoral specialization, and capital market mismatches—is not merely an implementation hurdle; it is structural residue resulting from disparate regulatory approaches interacting with novel technology.
The implication for systemic risk is profound: when settlement assets or collateral frameworks differ across venues, the ability to manage liquidity and mitigate crises is impaired, as netting efficiency breaks down. This suggests that technical interoperability alone is insufficient; true systemic integrity requires aligning legal and regulatory definitions of "one dollar" across all actors. The call for action—redefining standards based on economic function rather than technological labels—points toward a necessary paradigm shift where systemic goals mandate alignment over localized optimization.
What are the assumptions embedded in the existing system that permit this divergence? The current architecture implicitly prioritizes jurisdictional autonomy and technical innovation over universal monetary identity, allowing each rail to optimize its specific parameters (e.g., private issuance vs. public rails) without enforcing a unified concept of par convertibility for all participants. This mirrors historical tensions between national sovereign claims and global market integration.
What follow-up questions remain unanswered? How can international bodies effectively enforce the harmonization of property rights across disparate ledger technologies, especially when regulatory divergence is already the norm? If regulation targets activity rather than label, how will practitioners balance speed of deployment with the complexity required to establish globally recognized standards for finality and collateral?