The Bank for International Settlements (BIS) released a report examining the transformative potential of tokenization in finance and its implications for central banks.
While tokenization offers benefits like lower transaction costs and faster processing, the BIS highlighted significant risks, including governance, legal, liquidity, and operational challenges. These risks differ from traditional systems and require careful oversight by central banks.
The report also raised concerns about how tokenization might affect monetary policy and the demand for central bank money. BIS General Manager Agustín Carstens emphasized that tokenization brings both efficiency gains and new legal and technical challenges.
Legal uncertainties were noted as potential risks, such as the unclear application of existing laws to tokenized transactions.
According to Fabio Panetta, chair of the Committee on Payments and Market Infrastructures (CPMIA), effective governance and risk management are crucial for realizing the benefits of tokenization.
Despite the risks, global financial institutions are exploring tokenized assets, with UK Finance recently trialing tokenized deposits and programmable payments through the Regulated Liability Network (RLN).
Major banks, including Barclays and HSBC, participated, underscoring rising institutional interest in tokenized finance.
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