Global Agencies Release Tokenization Report at G20 Meeting
Date: 2024-10-23 Author: Oliver Abernathy Categories: IN WORLD
The Bank for International Settlements (BIS) and the Financial Stability Board (FSB) have released a series of reports ahead of the G20 meeting of finance ministers and central bank governors on October 23 and 24.
Brazil holds the G20 presidency in 2024, and like India last year, it has initiated discussions on digital currency.
Both agencies released reports on tokenization on October 22. Although the studies were conducted independently, the BIS and FSB highlighted common key points.
Tokenization: New Opportunities, Old Challenges Although the reports are mostly overviews, both organizations highlighted two important ideas: tokenization is a rare and poorly understood phenomenon that carries the same risks as traditional finance, as well as some unique ones. The FSB said:
“Tokenization has no universally accepted definition, [...] and the term has not been used in a standardized way across initiatives.”
The Financial Stability Board pointed to issues such as liquidity and maturity mismatches, leverage, asset price and quality volatility, interconnectedness, and operational vulnerabilities. “Due to its small scale, tokenization does not currently pose material risks to financial stability,” the FSB added. The BIS also noted:
“Known risks of existing systems are applicable to tokenization, such as risks related to credit and liquidity, asset custody, access policies, operational and cyber risks.”
These risks may manifest themselves in different ways due to the impact of tokens on market structure, for example through changes in the roles of intermediaries, where previously separate functions are combined on a single platform, the BIS added.
The BIS concluded that tokenization could offer potential benefits in terms of security and efficiency, in addition to the risks. The FSB recommended closer monitoring and information sharing. Both agencies stressed that central banks should consider regulating the process.
International alignment of interests India supported the FSB’s recommendation to create a global regulatory framework for cryptocurrencies during its G20 presidency and expressed its desire for stronger international regulation.
The FSB has identified tokenization as one of its regulatory priorities for 2024. The BIS also has several tokenization-related projects in its Innovation Center, which span many central banks around the world.
