As a seasoned researcher with years of experience delving into the intricacies of global finance, I find it intriguing to see the convergence of thoughts between the Bank for International Settlements (BIS) and the Financial Stability Board (FSB) on the topic of tokenization. Their independent studies, though offering an overview rather than a deep dive, have highlighted some common themes that echo my own observations in this field.
Prior to the gathering of the G20 Finance Ministers and Central Bank Governors, scheduled for October 23-24, both the Bank for International Settlements (BIS) and the Financial Stability Board (FSB) have published a collection of reports.
For the year 2024, Brazil will hold the presidency among the G20 group of the world’s leading economies, much like India did last year. Similar to India, Brazil has proposed a conversation regarding digital currencies.
On October 22nd, both the Bank for International Settlements (BIS) and Financial Stability Board (FSB) published reports focusing on tokenization. Despite conducting their research separately, they highlighted several shared topics of interest.
Tokenization: new, but maybe not so different
In essence, both reports primarily provided summaries, yet they highlighted two key points: tokenization, though widely used, remains somewhat enigmatic and carries risks similar to those observed in conventional finance, supplemented by unique ones of its own. Importantly, the Financial Stability Board underscored this assertion.
“Tokenisation has no generally accepted definition, […] and the term has not been used in a standardised way in connection with various initiatives.”
The FSB raised issues such as liquidity and maturity mismatch, leverage, asset price and quality, interconnectedness and operational fragilities. “Due to its small scale, tokenization does not currently pose material financial stability risks,” it added. The BIS said:
“The well-known risks of existing systems apply [to tokenization], such as those related to credit and liquidity risks, custody, access policies, operational and cyber risks.”
The potential issues could manifest themselves differently, arising from how token configurations influence market dynamics. For instance, if tasks that were once performed separately by intermediaries are now consolidated onto a single platform, this could alter the roles these intermediaries play.
According to the BIS, tokenization could offer advantages in terms of safety and productivity, while also posing some risks. Meanwhile, the FSB suggested increased oversight and data exchange. Both organizations proposed that central banks start thinking about strategies for regulating this concept. (Paraphrased)
Aligning interests internationally
As a crypto enthusiast, I’ve always advocated for a globally consistent regulatory framework to ensure the safety and transparency of our investments. During India’s tenure as the G20 president, it backed the FSB’s proposals, making it clear that it seeks more international regulation in this domain.
For the year 2024, the FSB has included tokenization among its key regulatory focus areas. Meanwhile, the Bank for International Settlements (BIS) boasts several tokenization initiatives within its Innovation Hub, which includes participation from numerous global central banks.
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2024-10-22 23:36