Given the current state of technology, agents could potentially deal with exchange by transferring directly Central Bank fiat monies. Are we close to private banks becoming “technologically obsolete” in the provision of payment services?. To provide insights into this question, we build a monetary search model with several ``imperfections" in the medium-of-exchange (MOE), such as asymmetric information in its value, imperfect supply elasticity, and transfer costs. Our model is specifically designed to account for historical evidence on banking origins, innovations, and also to speculate about its future. Banks are special because they are experts in assaying the quality of the MOE and have access to a retail payment infrastructure. However, even though inter-bank debt transfers are cheaper than MOE transfers, the payment infrastructure entails some other frictions related to the fact that more than one bank is involved in this process, compared to transferring directly the homogeneous MOE good. Given this model, we first show what we call the ``Two Worlds" result, which allows us to partition the parameter space into two sub-spaces that speak to the relevance of banking in the competitive equilibrium. Our main result suggests that the extent of near-future obsolescence depends on a sort of ``race" between private banks and Central Banks on future innovations in retail payments. Formally, suppose we start from a parameterized model consistent with being in a ``Banking World", where only bank debt is used for exchanges. Then, and resembling the current or near-future state of technology, if asymmetric information and transfer costs on the MOE converge to zero, then even with an arbitrarily good private payment infrastructure, the environment converges to a ``Non-Banking World", where agents demand only the MOE for payments, and sometimes also some complementary bank credit when money supply is sufficiently low. The reasons behind this result are twofold. First, when transfer costs approach zero, inter-bank netting does not add value anymore. Second, inter-bank payment infrastructure is arbitrarily good but still imperfect compared to agents transferring Central Bank deposits directly. However, we also show that, if MOE transfer costs become arbitrarily low but do not vanish, and inter-bank communication converges to being as good as transferring funds within a Central Bank, then the environment remains a ``Banking World". Therefore, our main results suggest that ultimately the near future obsolescence of private banks depends on whether these offer fast and seamless inter-bank debt transfers that resemble what would be like transferring debt within the same institution like a Central Bank. Moreover, these innovations would need to compensate for new innovations in the cost of retail transfers of Central Bank deposits directly
