BIS report highlights risks of shift from traditional finance to tokenisation

The Bank for International Settlements (BIS) reportedly released a report on Monday entitled ‘Tokenisation in the context of currencies and other assets: concepts and implications for central banks’, which examines how tokenisation could reshape the financial landscape and affect the role of central banks. The report highlights the significant benefits that tokenisation can bring, such as lower transaction costs and higher transaction speeds, which have attracted the interest of institutional investors; however, these advantages are also accompanied by inherent risks and challenges.

The report identifies a number of risks associated with tokenisation, including potential governance and legal framework issues as well as credit, liquidity, custody and operational risks. These challenges may be different from those faced by traditional market infrastructures and therefore require a thorough assessment by central banks. According to the report, ‘Central banks need to assess the trade-offs and appropriate balance between different types of settlement assets in token arrangements, and identify, monitor and assess tokenisation arrangements that may need to be subject to sound regulation, oversight and supervision.’

The BIS report highlights the potential impact of tokenisation arrangements on the conduct of monetary policy, particularly with regard to changes in the structure of regulated markets and the demand for central banks relative to other forms of money. This changing landscape could affect the way central banks operate in the future. Agustín Carstens, Managing Director of the Bank for International Settlements (BIS), noted that while tokenisation can improve the security and efficiency of the financial system, it also poses economic, legal and technical challenges that must be addressed. The report notes that the legal risks of tokenisation can stem from unintended or uncertain applications of the law.

Translated with DeepL.com (free version)