In banking as in so many industries, the internet has cut out middleman steps between the retail customer and wholesalers. Australian economist Nicholas Gruen asks whether the technology revolution means that everyone should have access to the services of a central bank like the Bank of England.

Those bank notes in your wallet are IOUs from the central bank – if you're in the UK, from the Bank of England. Gold used to be the ultimate form of money – but today those notes in your wallet are money as securely, as absolutely as Barclay's or Lloyds Bank's money in their exchange settlement accounts with the Bank of England.

Bank of England notes give you economic value to have, hold, and transfer to others costlessly and instantly. The recipients of your notes then have the same ultimate claim on the Bank of England, and through it on the government, that you had.

Central bank notes are a simple but powerful technology. Yet they were rare in the early 19th century, when the banknotes in circulation were predominantly issued by private banks. What if you'd just been paid, or were saving them up to buy something nice, and the issuing bank went bust? Well, that was too bad for you. Not surprisingly, given the superior security and liquidity of central banknotes as a medium of exchange, private notes had largely been hunted to extinction by the middle of the 20th century.

Now consider this: in online banking, we haven't even got this far. We're not even back in the 19th century, with private and central bank notes battling it out in the market – we're at an earlier point still. Citizens transferring money over the net must use commercial banks, paying high fees and/or receiving unfairly low interest for the privilege of risking everything on the bank's continuing solvency.

Policy even ensures that the government's savings and loans (S&L) doesn't spoil the commercial banks' party, by ensuring that S&L customers can't easily use such accounts to make transfers – they have to transfer their S&L funds into the commercial banking system first.

Meanwhile, in sector after sector, the internet is transforming industrial structures, with wholesalers increasingly disintermediating retailers. Retailers may survive but usually by refocusing in areas where they add most value. Thus we can buy books from Amazon or a local bookstore, flights from airlines or retail 'platforms' like Expedia, or from travel agents at their local shops. That's the magic of capitalism: innovation thrives and the customer is king.

But not in the public-private partnership that is banking. There, liquidity is vouchsafed at the apex of the system by government, through the Bank of England, which 'wholesales' that liquidity to commercial banks, who then compete with each other to retail it. Given the technology of the time, this made sense as the system matured through the 19th and 20th centuries. But the internet renders this strict separation inefficient, particularly given the other risks and costs produced by a bloated, bonus-riddled banking sector that enjoys tens of billions in subsidies from other wholesale borrowers to 'too big to fail' banks which assume they'll be bailed out if there's any trouble.

Today, the internet enables us to cut out the middleman for a substantial proportion of basic 'utility' banking services. With appropriate adjustment of its mandate and development of its IT infrastructure, deposit-taking and payments, for instance, could be delivered through S&L acting as an agent for the central bank.

Central banks also engage in wholesale lending to commercial banks. This is another service which could be retailed by the central bank, again with S&L as the delivery mechanism. Where it lends to commercial banks on the basis that they can satisfy prudential regulation, the central bank should lend to others on the basis that they can demonstrate their security, at low cost. They could do so with unusually good collateral with the bank being able to lend, say, 60 per cent of the value of prime residential or 40 per cent of prime commercial property. This represents much better asset quality than the bank currently receives from the commercial banks.

Cutting out the middleman would dramatically reduce the costs and margins charged for such services, and leave commercial banks to focus on adding value in areas in which they can add most value – in innovating, developing local knowledge, relationship-building and assessing credit risk.

By the principles of competitive neutrality, the central bank should charge and receive the same interest rates for all customers – which is the bank rate plus or minus a small margin, although such margins should rise for retail customers if they cost more to service. Likewise, the bank need not roll out its own branches or elaborate IT systems but could readily subcontract such services through the best bids from S&L, the post office, or retail chains in various industries.

Central banking for all would also help monetary policy to work when the bank rate is close to zero but margins keep customer rates well above zero. The Bank of England has described its 'quantitative easing' – the creation of new bank money to purchase financial assets from private institutional investors – as 'designed to circumvent the banking system'. The more broadly such subversion is done, the more effective it will be.

Central banking for all as proposed here will lead to ongoing microeconomic benefits of the kind that are being created as industries are disrupted and disintermediated via the internet. In banking, this could mean lower rates in basic 'utility' banking services, more money in citizens' pockets for other uses, and a much more direct front on which monetary expansion via quantitative easing can underpin an economic recovery.

Dr Nicholas Gruen is CEO of consultancy and advocacy firm Lateral Economics and chair of the Australian Centre for Social Innovation (TASCI), and is an advisor and commentator on innovation and web 2.0.