This provides a powerful secular incentive for non-decomposable socio-economic systems. Moreover, if these hyper-connected networks do face systemic threat, they are often able to adapt in ways which avoids extinction. For example, the risk of social, economic or financial disorder will typically lead to an adaptation of policies to prevent systemic collapse. These adaptive policy responses may preserve otherwise-fragile socio-economic topologies. They may even further encourage the growth of connectivity and complexity of these networks. For example, policies to support “super-spreader” banks in a crisis may encourage them to become larger, and more complex, still over time (Haldane (2009)). The combination of network economies, and policy responses to failure, means socio-economic systems may be less Darwinian, and hence decomposable, than natural and biological systems. It is against this backdrop that a complex, socio-economic “system of systems” may emerge. This can defined as one comprising an interlocking set of individually complex webs ((Gorod et al (2014)). The system of system concept initially emerged for engineering and enterprise systems, which involved the multi-layered assembly of component parts. But it has since found its way into a number of other domains including military planning, ecological evolution, power grids, transport networks and neurological structures (Gao et al (2014)). Although still in its infancy, there are some general properties of a “system of systems” perspective that are worth bringing out. For example, Kurant and Thiran (2006) look at the behaviour of a particular topology – a layered complex network.

Some have suggested tiered remuneration for different holding amounts in order to influence incentives and ensure appropriate integration into the monetary system.10 In the case of stablecoins, central banks don’t directly control interest that might be paid on these instruments. However, incentives created by remuneration policies could have important influences on the structure and relative demand for private and public digital currencies. Depending on how the regulatory and policy environment for financial innovation evolves, stablecoins could be issued by banks or other regulated entities that could have access to interest-bearing accounts at central banks. In this case, the rate of remuneration stablecoin issuers earn on their accounts might influence the rate paid to stablecoin holders, and the role of the instruments in the broader monetary ecosystem.11 Of course, implementation issues are not the only important consideration for remuneration of digital currencies, but it should be one consideration. Choices about the remuneration of new central bank liabilities, like CBDC, and of the accounts of private stablecoin issuers, could have an important influence on the incentives created by monetary policy implementation frameworks. Given this, central banks should take a holistic approach to considering the impact of their remuneration policies on the ecosystem of both private and public currencies. Pillar 2: Liquidity supply This brings me to the second pillar of interest rate control: liquidity supply. In order for central banks’ remuneration rates to effectively achieve interest rate control, central banks supply reserves in appropriate quantities to achieve the interest rate target.