It’s all about the role of money - speech by Nathanaël Benjamin

It is a pleasure to be here with you – my thanks to OMFIF for hosting me again.

What I am going to set out today and the ideas underpinning it are the result of reflections in the course of all my regional visits to date. These visits, organised by our network of agents where we engage directly with citizens and businesses across the country, are one of the highlights of the job. During these, often we host citizen panels, where we invite members of the public to come and discuss with us their own lived experiences. So that we can understand the real and invaluable perspective that this brings on the analysis that we do to inform our policies. The lived experiences behind the numbers.

And typically, we start these panels by explaining what the Bank of England does. Why we exist. Our fantastic outreach team has a great set of slides which start with: “Our role is to ensure trust in money.” And then we set out what we do, and – as importantly – what’s not for us to do.

These interactions with members of the public, and striving to explain as clearly as I could why we do what we do, have led me to focus particularly on this somewhat existential question. And I have found that this then helped to think about a broad range of very current topics. I have set out in the past our “pivot to the macro,” a systematic analytical approach to relate all financial stability questions to why we ultimately care about it, viewing stability as a means to an end, not an end in itself. The ultimate goal being economic welfare, including long-term growth. And then using that as a lens to prioritise issues – at which point, given the way in which modern economies work, we inevitably circle back to the pivotal role of money.

So today I would like to set out how everything we do as a central bank is to ensure that money does its job in the economy in all situations. That’s the reason we exist, nothing more, nothing less. And then I’ll use that framework to offer some perspectives on a selection of current policy matters.

While this may seem abstract at first glance, money sits at the heart of the functioning of the economy and the everyday decisions of households, businesses, and financial markets. It is the means through which households and businesses receive income, invest and consume, pensioners save, firms insure against risk, banks extend credit, and markets allocate capital to help the economy grow.

The Bank of England’s mission is to promote the good of the people of the United Kingdom by maintaining monetary and financial stability. Monetary stability is about keeping prices inflation low and stable, with the Bank’s target of maintaining inflation at 2%, to preserve the purchasing power of money. Financial stability ensures that the financial system, which is about creating, transferring, investing, and managing money, is resilient enough to absorb shocks while continuing to provide its vital services in both normal times and periods of stress. Together, these objectives play a central role in supporting sustainable economic activity, which is itself underpinned in a modern economy by money.

This clear link between the Bank's activities and the role money plays in supporting economic activity raises a question as to whether the core functions of money could provide us a unifying framework to think about the optimal reach of central bank policies. Such a framework, whilst not the only lens through which to assess how central banks contribute to economic welfare, can shine a light on why we do what we do and also inform the appropriate reach of our future activities and interventions.

Money, which I am defining here in the broader sense, has three core functions – to act as: a safe store of value, a reliable unit of account, and an effective medium of exchange. These core functions may seem straightforward and intuitive. But that is easier said than done. To actually make it happen all the time, in all states of the world, is no mean feat. Moreover, all three functions of money are intertwined and mutually reinforcing in facilitating the smooth functioning of the economy. These functions don’t operate independently.

That is why, beneath the surface, there are a range of features underpinning each function of money, with far-reaching implications for the Bank’s activities. The examples I will discuss today are only a selection of those links, to illustrate the broader systematic causal relationship between virtually everything we do as a central bank and money’s ability to perform effectively its essential functions in the economy. Let me step through each function of money to explore that.

The store of value: stable prices, safety, redemption, and confidence over time

I will start with the first function of money: as a store of value. For money to be a reliable store of value, it must retain its purchasing power over the short term. It must be stored safely, be reliably retrieved, and its real value must be reasonably predictable over the long-term. A balance held for the purpose of payment of goods and services by households and businesses should not fluctuate like an investment asset.

As such, money’s store-of-value function depends fundamentally upon expectations of the stability of the value of that money. High inflation erodes the real value of money, while deflation can increase the real burden of nominal obligations. Both outcomes can undermine confidence in the monetary system. Hence, maintaining low and stable inflation is a precondition for all forms of money to function as a reliable store of value, which is why it is the mandate of the Bank’s Monetary Policy Committee.

Similarly, confidence in the safety of deposit storage is central to this function. If households or firms have any concerns that they will experience losses on their deposits, confidence can deteriorate rapidly. The regulatory framework for banks, including capital and liquidity requirements, an effective resolution regime, as well as deposit insurance arrangements, plays an important role in maintaining this confidence. By reducing the likelihood that depositors suffer losses when shocks hit the financial system or when firms fail, these safeguards help to preserve trust in money as a safe store of value.

The unit of account: singleness and settlement

In its simplest form, as a unit of account, money acts as a standard measure for the setting of prices and the recording of transactions. It allows us to say that a coffee costs £3, that the median annual salary for full-time UK employees was £39,039 in April 2025, or a loan is £100,000. In practice, it also means that contracts must be denominated in a stable unit, and transactions must settle at the values agreed.

A central element of this function is the principle of the singleness of money.^{footnote [1]} Under this principle, all different forms of money – whether we hold them in bank accounts, notes, or digital coins – must be exchangeable with each other at par value. In other words, the value of a pound in an individual’s bank account must equal the pound coin in another individual’s pocket or virtual wallet. Singleness is crucial to monetary and financial stability as households and businesses can be assured that all money in the economy has the same value at all times. This equivalence underpins confidence in money and ensures that it serves as a consistent and unambiguous unit of account across the economy.

However, maintaining this singleness across all products is not automatic. To understand why, it is useful to distinguish between the two principal forms of money that currently exist: central bank money and commercial bank money. Central bank money comprises banknotes and the reserves that commercial banks hold at the central bank. The reserves act as the ultimate settlement asset and provide the anchor for the monetary system. Commercial banks, meanwhile, create most of the money used by households and businesses. When banks extend loans, they create deposits, which are themselves used as money throughout the economy. This ability of commercial banks to create money through lending is a unique privilege granted through the banking licence.

That privilege, however, comes with responsibilities. The deposits created by banks are expected to be exchangeable at par with central bank money and to retain their value in all states of the world. Maintaining that confidence requires an institutional framework that ensures the convertibility of commercial bank money into central bank money at par. This is a key rationale for the Bank’s regulation and supervision of commercial banks – a central plank of financial stability alongside further backstop measures – to ensure that a pound created by a bank in the form of a deposit always remains equivalent to a pound of central bank money. This preserves the singleness of money and ensures that commercial bank money is seen as good as central bank money.

The importance of maintaining money’s role as a unit of account is particularly relevant as new forms of digital money emerge, including stablecoins, tokenised deposits, and potentially a digital pound. These can bring benefits in the form of faster payments, lower costs, and greater functionality. But for them to be used with confidence throughout the economy, they must remain fully interoperable with existing forms of money and be redeemable at par.

Consistent with this, the Bank’s proposed regime for systemic stablecoins requires issuers to hold high-quality backing assets, including central bank deposits, so that stablecoins can be redeemed promptly at par, thereby maintaining confidence in their value. The regime also includes operational resilience requirements and supervisory oversight to ensure stablecoins remain reliable even under stress. More broadly, the Bank's vision is for a multi-money system in which cash, bank deposits, tokenised deposits, and stablecoins can coexist and be exchanged seamlessly, with central bank money continuing to serve as the anchor of trust for the monetary system. This would ensure that new forms of digital money enhance innovation and choice without undermining money’s role as unit of account.

Another feature to ensure money’s unit of account function is finality of settlement. Put simply, when money moves between people or businesses, there needs to be a mechanism to ensure that the transfer is completed with certainty. If a customer of one bank makes a payment to a customer of another bank, the paying bank incurs an obligation to the receiving bank that must ultimately be settled. This is where central bank money plays a unique role. Settling obligations in central bank money ensures that payments are completed using an asset whose value is not dependent on the solvency of a private institution.

Finality of settlement means that, once a payment has been made, households and businesses can be confident that it is complete and cannot subsequently be reversed. This is particularly important in wholesale financial markets, where large-value transactions can create significant exposures between counterparties before settlement is completed. For example, one party may have delivered cash or securities while awaiting receipt of the corresponding payment or asset. The Bank of England's real-time gross settlement infrastructure plays a critical role in ensuring that these payments are settled in central bank money and are final, thereby reducing credit risk, limiting counterparty exposures, and supporting confidence in the integrity of the payment system.

So, when we think about money as a unit of account, we have to think about much more than just the denomination in which prices are listed, but also the institutions that preserve singleness of money and the infrastructure that delivers finality of settlement.

The medium of exchange: liquidity, payments, and the flow of credit

Money enables transactions to take place without the need for barter and facilitates the flow of goods, services and financial claims throughout the economy. For this function to operate effectively, money must also be readily available to those wishing to transact, be deployed efficiently, and flow smoothly through the financial system including during times of stress.

In the first instance, the ready availability of money requires that households and businesses are able to access their deposits when needed. Through prudential regulation of commercial banks’ own liquidity requirements, and through the direct provision of liquidity to them via market operations, the Bank of England ensures that deposits can be accessed when needed for transactions, which is essential to support money’s role as a medium of exchange.

But it is not only about accessing existing stocks of money. It is also about how readily the stock of money gets larger or smaller – or how ‘elastic’ it is – in reaching the corners of the economy where it is required. This means that the financial system must be sufficiently responsive in its ability to expand or contract the money supply in response to economic demand.

In the main, the money supply expands through the extension of credit. If credit cannot be provided where it is needed or where productive opportunities arise, economic activity may be held back unnecessarily. Of course, it is also important to avoid excessive expansion in periods of overheating (Borio, 2019). Through stress testing and counter-cyclical bank capital requirements, central banks play a key role in ensuring that credit is available in times of stress, thereby preventing procyclical contractions in credit that could amplify downturns.

The speed with which a given money supply circulates through the system is also relevant to how well, in its role as a medium of exchange, money supports economic activity. Put simply, the more efficiently money is put to use, is used for transactions, and flows through the system, the better activity is supported.

If money is being hoarded, for example, it is not being put to use efficiently. This is one reason why confidence in insurance companies, which the Bank of England ensures through prudential regulation, is important. A policyholder pays insurance premiums today on the understanding that, if an insured event occurs, a payment will be made in future. If households and businesses lose confidence that those payments will be made, they may feel the need to set aside additional precautionary savings as self-insurance, reducing the extent to which money is put to work elsewhere in the economy.

Payments efficiency is also crucial. If payments are slow, costly, or unreliable, money does not move as well or as effectively as it should, impeding its function as a medium of exchange. The Bank’s work on payment systems, financial market infrastructure and emerging forms of digital money is therefore aimed at ensuring that the movement of money remains safe, resilient, and efficient, while supporting innovation in payments.

This includes the work on emerging forms of digital money and next-generation payment infrastructure, that can reduce costs, improve functionality, and expand user choice, while ensuring that trust, resilience, and confidence in money are maintained.^{footnote [2]} The objective is to ensure that new technologies enhance the efficiency of money while maintaining the stability and trust on which its role as a medium of exchange ultimately depends.

Finally, ensuring liquidity in core financial markets such as government bond and repo markets is also integral to the flow of money around the financial system and hence to the real economy. Disruptions to liquidity during periods of stress can have direct consequences for households and businesses and hence for economic activity. The first line of defence is to ensure that these markets are resilient enough to absorb shocks without amplifying them. This is reflected in the Bank’s ongoing work to strengthen the resilience of core markets.

At the same time, it would neither be feasible nor desirable to build resilience to every conceivable shock. There will inevitably be circumstances in which severe dysfunction emerges that only the central bank can address. Hence, it is equally important that the Bank has the right tools to step in where necessary to restore market functioning and, where appropriate, recycle liquidity itself directly through the financial system so that the flow of money and credit can continue to support the real economy.^{footnote [3]}

Hence, when we talk about money as a medium of exchange, we are really talking about the whole set of conditions that allow money to flow: liquid deposits, banks having the capacity to create more money through lending when needed, efficient payment systems, resilient insurance firms, and functioning core markets, so the financial system does not seize up when shocks hit.

What does this mean for the setting and reach of financial policy?

So far, I have argued that much of why the Bank does what it does can be understood through the lens of supporting the three functions of money. This framework also provides a useful lens through which to consider the optimal reach of financial policy.

While the Bank’s Financial Stability Strategy describes a broad set of responsibilities: surveillance, resilience, preparedness to act, and responsible innovation, these can be understood as supporting the conditions under which money performs its core functions. Identifying emerging risks is about preparing the financial system for shocks so that market participants, for instance, do not have incentives to hoard liquidity during stress, undermining the recycling of liquidity throughout the system, and weakening the role of money as a medium of exchange. Maintaining resilience is about ensuring that banks, insurers, markets, and infrastructures can support households and businesses, allowing money and credit to flow smoothly when they are needed most. Facilitating responsible innovation in settlement and payments aims to improve the efficiency with which transactions are undertaken, an important contribution to, again, the role money plays as the primary means of exchange in the economy.

Given this symbiosis, it is natural to ask to what extent we might draw on the functions of money to help think about the optimal reach for financial stability policy, as implemented at the Bank. What are the things it should aim to touch and have a direct effect on?

We could say that financial stability should be most directly concerned with risks or frictions that impair money’s ability to function as a unit of account, medium of exchange or store of value, or those that disrupt the provision of the financial services through which these functions are delivered.

While this framework does not provide mechanical answers to all policy questions, it offers a coherent anchor for judgement. Let me give three examples, related to a few current policy topics in the financial stability sphere.

Economic growth and the role of financial policy

An argument heard at times is that higher bank capital requirements since the global financial crisis have increased the cost of bank credit, thereby reducing lending and, in turn, economic growth. Such argument has contributed to calls for reductions in capital requirements. This is notwithstanding a growing body of empirical literature suggesting that the long-run costs of higher capital requirements are limited,^{footnote [4]} as per the literature review published in the Dec 2025 Financial Stability in Focus.

Avoiding the “stability of the graveyard” whereby capital requirements are too high for banks to meet demand for credit is, of course, crucial to support economic welfare.^{footnote [5]} However, it is important to recognise that robust capital standards also support economic activity by reducing both the probability and the severity of financial crises. Crises are costly: for example, Bank of England analysis suggests that the average net present value cost of a financial crisis is around 43% of GDP. By ensuring that banks have sufficient capacity to absorb losses, higher capital requirements reduce the risk that lending is cut back sharply during downturns, so that financing remains available where and when it is needed most. In money terms, this means maintaining even under stress the elasticity of supply – which is central to money’s role as a medium of exchange in supporting economic activity.

Therefore, the relevant policy question is not whether capital is good or bad for growth in a binary sense, but rather what level and structure of capital requirements most effectively support sustainable growth by appropriately balancing resilience and efficiency. As set out in the FPC’s assessment of bank capital requirements, an effective capital framework should be resilient to support the economy through periods of stress, while also being well-calibrated and free from unnecessary complexity or unintended frictions that could reduce its effectiveness.

Where the elements of the framework are more stringent, complex, or less usable than is necessary to deliver an appropriate level of resilience, it is important to consider targeted adjustments that remove unintended effects in the framework. Hence, in its July 2026 Financial Stability in Focus, the FPC announced a meaningful package of reforms to strengthen the usability and releasability of regulatory buffers and adjust the leverage framework to address unintended consequences. So that banks are better able to use capital to support lending and the functioning of core markets during periods of stress, while maintaining overall consistency with international standards. For example, we identified some unintended features in the existing leverage ratio regime, which caused domestic lending to be more penalised in the UK than in other jurisdictions. Such features are not consistent with having a system where banks support the UK economy including in stress when it needs it most, so we are proposing to remove them. The purpose of these adjustments is not to trade off the overall resilience of the banking system in the hope that lending or growth will be somehow boosted as a result. Rather, it is to ensure that resilience is delivered in the most effective and best targeted way possible.

The policies most likely to move the dial on supporting growth are not those that seek to expand credit indiscriminately or reduce capital requirements across the board.

There is little empirical evidence either that broad-based reductions in capital requirements would necessarily translate into materially higher lending. As our July 2026 Financial Stability Report notes, the FPC found no sign of lending being restricted by banks to protect their capital position, on the contrary bank lending has increased and they have continued to supply credit to households and businesses despite the deterioration in the macroeconomic outlook and heightened uncertainty. Moreover, as has been recently highlighted, UK banks' returns have in recent times exceeded their cost of capital. ^{footnote [6]} If capital requirements were acting as a binding supply-side constraint on lending, this would be reflected in banks' profitability relative to their cost of capital. This suggests that, for most sectors, the availability of credit is not currently being limited by the overall level of capital in the banking system.

Rather – and here is where we come back to the role of money to work out what will or will not move the dial – policies should focus on addressing unnecessary frictions in the expansion of the money supply through credit, in the sense of ensuring that money gets to where it is most productive. This includes the provision of financing or channelling of long-term capital to high-growth firms and SMEs, which often face challenges in accessing the funding required to scale up, and yet have the potential to make significant contributions to productivity growth improvements. This matters because economic growth depends not only on the overall quantity of finance available but also on how effectively it is allocated.^{footnote [7]}

Enhancing access to finance for such firms can support growth by improving the overall efficiency of capital allocation within the economy. At a system-wide level – and unlike any broad-based expansions in credit supply through a lowering of bank capital requirements – this is an effective way of supporting sustainable growth. Because it improves the productivity of investment rather than simply increasing the availability of credit. The Bank’s work to identify barriers to the effective provision of finance in support of growth is key here.^{footnote [8]} Because removing such barriers enables money as a means of exchange to reach the corners of the economy that will make the most out of that functionality.

Put differently: when the issue is that there are barriers to money reaching the creditworthy corners of the economy that contribute most to growth, the answer should be to remove those barriers, because the overall quantum of money created isn’t the problem.

Non-bank providers of credit

Over a past decade of near-zero interest rates, non-bank finance has become an increasingly important component of the financial system. Institutions such as private credit funds, private equity firms, asset managers, pension funds, and hedge funds now play a significant role in financing the real economy and intermediating financial markets. This diversification is welcome and can yield important economic benefits. It can broaden the range of funding sources available to firms, distribute risk more widely across the financial system, and provide long-term capital for investments that may not be well suited to traditional bank lending.

At the same time, the growing importance of non-bank finance raises a number of questions for financial stability. As a result of this new reality, it has been asked whether non-bank credit providers should be subject to regulation similar to that for banks.

The answer comes back to the role of money.

As I touched on earlier, banks are unique in that they have – through their banking licence – the power to create money in the form of deposits. These deposits are part of their liabilities, used as money as a means of payment, and expected to be redeemable at par on demand. And they are also expected by their depositors to provide a safe storage of the value represented by that money. This places banks at the centre of all three functions of money. Such power comes with strings attached, in the form of bank supervision, regulation, deposit insurance, and resolution, but also with privileges such as a direct access to the Bank of England’s balance sheet operations to supply liquidity on demand.

By contrast, non-bank financial institutions do not have the power to create money. They do not issue deposit-like liabilities that function as money. Their liabilities are typically investment products whose value fluctuates with market conditions. Losses incurred by non-bank institutions are therefore generally borne by investors, rather than by depositors, and do not directly affect the nominal value of money as a store of value, nor the unit of account, nor the overall supply of money available to support transactions. In this sense, the risks to the functioning of money associated with non-banks are one step removed from depositors and the core of the monetary system. This explains why there is less of a justification for prudential regulation of the type banks are subject to.

And while banks have often pointed to the different regulatory treatment that non-bank actors benefit from, it has to be acknowledged that non-banks do not benefit from direct business-as-usual access to a central bank balance sheet. By definition, this means they have fewer liquidity management tools at their disposal than banks do – consistent with their comparatively greater distance from the heart of the money engine.

Such greater distance does not mean at all that non-bank finance doesn’t come with risks for financial stability. For example, a contraction in private market financing could affect the production capacity of firms reliant on their financing, with potential implications for economic activity. Similarly, the build-up of vulnerabilities related to liquidity mismatches, elevated leverage, and high interconnectedness in the sector, can ultimately impact the financing provided by these markets to the real economy.

That is why the FPC’s priorities include enhanced surveillance of market-based finance and performing system-wide exploratory scenarios (SWES), including the private markets exercise currently underway. The objective of this work is to enhance the understanding of interconnections within the financial system. And to assess whether shocks originating in non-bank finance could amplify stress or impair the provision of financing to the real economy. It also aims to improve the understanding of how different participants are likely to behave under stress and how those behaviours can interact at a system-wide level to amplify or absorb shocks.

By helping market participants better understand how others may respond in periods of stress, it can help them update their risk management playbooks, so that the financial system as a whole is better prepared to self-stabilise in periods of stress. This reduces the likelihood that individual actions collectively amplify shocks and impair the provision of financing to the real economy.

Hedge fund leverage and core markets

The Bank’s first SWES exercise highlighted the role of hedge funds as important participants in core financial markets. In particular, hedge funds contribute significantly to market liquidity, but they are also active users of derivatives and repo financing, both of which can result in very high levels of leverage, which, if unwound abruptly, could be destabilising to markets. This would impair the ability of money to circulate in stress, preventing its functioning as a medium of exchange. This has raised questions of whether policy should seek to regulate hedge fund leverage directly.

Again, through the prism of money, I would argue the answer is no. This is because like all other non-bank financial institutions, hedge funds themselves do not issue money-like liabilities. Hence, their resilience per se is not essential for money performing its role.^{footnote [9]} Rather, the key issue from a system-wide perspective is that the effective circulation of money in stress depends on whether the market as a whole continues to function – not whether one individual hedge fund might or might not incur difficulties (which is a matter for its owners and investors).

Hedge funds manage complex global portfolios and reallocate leverage and liquidity across different strategies; an entity-level resilience requirement would not necessarily constrain their activity in the markets we mostly care about.^{footnote [10]} Hence, trying to control directly how leveraged hedge funds can get doesn’t strike me as the best course of action to address the issues.

Of course, where we do identify in other parts of the financial system some business model vulnerabilities directly tied to the functioning of core funding markets, we still take targeted entity-based policy action to address them. A good example of this are the measures to improve the resilience of Money Market Funds (MMFs), which ensure that they have sufficient liquid assets to meet redemptions.^{footnote [11]}

Notwithstanding such specific cases, in general I think for the resilience of core markets the role of money lens points first to a more efficient policy focus on the activities, rather than on the types of market participants.

By the way, that resilience of core markets has improved significantly, as illustrated through recent shocks. But such improved resilience is not yet locked permanently into the structure of these markets. So doing nothing is not an option. Addressing those underlying structural vulnerabilities permanently is the subject of the Bank’s ongoing work on improving the resilience of gilt repo markets, where possible reforms such as greater central clearing and minimum haircuts on non-centrally cleared transactions are discussed. These are aimed at reducing the susceptibility of these markets to disruptive deleveraging episodes, helping ensure they can continue providing the financial services on which households and businesses rely, and reinforcing money's role as a trusted medium of exchange.

This illustrates a broader principle for macroprudential policy. The primary objective should not be to eliminate risk – on the contrary risk-taking is indispensable to economic activity – but to ensure that the system is able to absorb shocks rather than amplify them. This includes the risks arising from unmanageable leverage, liquidity mismatches, and interconnectedness, where these have the potential to impair the functioning of key financial services and hence the ability of money to perform its core roles.

Conclusion

Money performs three essential functions: it operates as a store of value, allowing households and businesses to hold and retrieve purchasing power with confidence; serves as a unit of account, enabling prices and contracts to be expressed in a reliable and stable measure; and acts as a medium of exchange, facilitating payments and the flow of credit through the economy.

As many other central banks, the Bank of England is tasked with maintaining both monetary and financial stability. Viewing central banks’ policies through this lens helps to inform both what policymakers should seek to achieve and where its optimal reach should aim to reside. The functions of money provide a natural basis for such a framework.

Today I have given only a few illustrations of how this perspective can help inform topical financial stability issues: on bank capital requirements, barriers to growth, and risks from non-bank finance. This is not intended to be an exhaustive list. Rather, they are examples of a broader way of thinking about the role of a central bank.

Indeed, as the financial system continues to evolve, there are likely to be many more applications to come. Technological advances, new forms of digital money, changing patterns of intermediation, the growing role of non-banks, innovation in payments and settlement, and developments that we cannot yet foresee: all will raise new policy questions. The challenge for policymakers will be to assess these developments through a consistent lens: whether they strengthen or weaken money's ability to perform its essential functions.

I think reconnecting with the concept of money and what it’s for will provide an increasingly helpful foundation to think about these things.

I’m sure it won’t answer all questions. But it should help.

Thank you.

I would like to thank Shefalika, Niki Anderson, Nick Butt, Pelagia Neocleous, Grellan McGrath, Matt Waldron, Tom Smith, Joshua Jones, Vicky Saporta, David Bailey, Phil Evans, and Tom Mutton for their comments and help in the preparation of these remarks.