Although banks have been going digital for years, and “fintechs” have been around for a while, the industry has not fundamentally changed. That is because disruption can happen only as quickly as regulators allow it. The pace is limited not only by valid safety and soundness considerations but also the painfully slow speed of regulatory innovation. We are trying to regulate a digital world with 20th century architecture that was designed for physical assets.

The growing support for central bank-backed digital currencies could finally pave the way for change by spurring the creation of 21st century regulation. It can do more than just disrupt the industry, it can tackle oligopolistic banking, too big to fail, systemic efficiency, and fulfil the promise of finance.

Our current rules are rooted in physical assets and evolved as the industry innovated. Deposit boxes were created for safekeeping coins. Lending earned returns on these deposits through pooled investments. Deposit insurance was created to prevent bank runs. Bank account numbers became a source of identity. This bundled offering of services required new laws and regulations to make the industry safe. As regulators codified this model, economies of scale created an oligopoly of conglomerates.