The Bank for International Settlements (BIS) has released a report to the G20 that details the potential benefits and risks of tokenizing money in the financial system. The BIS noted that this trend could have implications for the role of central banks in payments, monetary policy and financial stability.
BIS defines tokenization as the creation and recording of digital representations of traditional assets on a programmable platform, writes Finextra. At the beginning of the year, the Bank for International Settlements, together with seven central banks, launched the Agora project to study the tokenization of cross-border payments.
Agora builds on the single ledger concept proposed by the BIS and explores how tokenized deposits of commercial banks can be integrated with tokenized central bank money.
“Tokenization has significant potential to increase the security and efficiency of the financial system. Central banks, together with the private sector, must continue to explore new technologies and develop solutions that meet the goals of the future financial system. However, tokenization also creates economic, legal and technical challenges that need to be resolved in order to realize its potential,” BIS CEO Agustin Carstens emphasized.
In July, BIS presented the results of the cross-border payments project Nexus. The Bank for International Settlements intends to proceed with the practical implementation of the Nexus project, an initiative aimed at expanding cross-border payments by combining several national instant payment systems around the world.
