Bitcoin was designed to be a Peer-to-peer electronic cash system, and that is what it should be. I would note however that even if Bitcoin is used as a P2P electron cash system, it can also be used as a settlement layer, however there is little reason why anyone would want to do so.

As mentioned by ahpku above (see reply #3), the title of the Bitcoin white-paper by satoshi implied that satoshi designed Bitcoin to be a P2P cash system. The features of Bitcoin support a P2P cash system while they do not support a settlement layer.

For example, once confirmed, transactions are irreversible, this supports a P2P cash system because this alleivates the risk of a check bouncing, a PayPal payment being disputed, ect., it does not however support a settlement layer because if an employee of a financial institution were to make a mistake and send the wrong amount to an incorrect address then the financial institution will pretty much need to eat the loss verses generally being able to fix said mistake with current available settlement layers (SWIFT, ACH, FEDWIRE, ect.).

Another good example is the pseudonymity when using bitcoin. Note that in order to use Bitcoin correctly, one should not use the same address more then one time. This is something that would be attractive for a P2P cash system because neither a buyer nor a seller would have an advantage when negotiating a price on a trade, I can mask how much money I have/where I am spending my money/how much money I am making with my trading partners. With a settlement layer (system), current available options make it very easy to audit transactions, which is necessary for a settlement layer, and Bitcoin would make this more difficult. For example if Bank of America needed to send $1,000,000 to US Bank, they could use the FEDWIRE system and deposit said amount into US Bank's account at the FEDWIRE system which will not change and is established, however if Bank of America were to use Bitcoin to send this transaction, they would need to get a Bitcoin address from US Bank (via a GPG signed message?), then send $1,000,000 worth of bitcoin to said address, and Bank of America would then need to keep/store said GPG signed message indefinitely for audit purposes.