Separated out from a long list of crypto-assets and stablecoin actions was ‘related’ work on tokenization. It revealed that the FSB is exploring current and planned asset tokenization projects in order to assess financial stability implications. It also wants to see if there are policy implications for the the FSB Committee that assesses vulnerabilities in the global financial systems, currently chaired by U.S. Treasury’s Nellie Liang. Additionally, it could pass any identified issues onto the committee on regulatory cooperation. The work has started and will complete in 2024.
Tokenization impact on central banks
Separately the Committee for Payments and Market Infrastructure (CPMI) is exploring “the benefits, risks and challenges to central banks of a tokenised financial ecosystem.” The work was classified as early stage and no schedule was provided.
While the FSB only gave a succinct description, some regulators have already shared their positions. The recent BIS report on the unified ledger signalled a positive approach to tokenization. It outlines the potential for tokenized CBDC to sit on he same network as tokenized bank deposits and tokenized assets, creating enormous efficiencies as well as new business models.
However, the work on a wholesale digital euro CBDC also highlights some of the tensions. The central banks of Germany and Italy are concerned about the potential for fragmentation if there are various platforms on which CBDC sits. However, automated on and off ramps could sweep excess funds out of DLT pools that aren’t being used. Alternatively there’s the unified ledger concept, with a version being tested as the Regulated Liability Network.
Another concern voiced by the Bank of Italy is issuing CBDCs onto multiple platforms. Decentralizes issuance makes oversight harder. Again, automation could play a powerful role here.
IOSCO, CPMI explore DLT for FMIs
There’s a another joint piece of work by the International Organization of Securities Commissions (IOSCO) and the CPMI to identify the risks of financial market infrastructurs (FMIs) using distributed ledger. It will also look at the interaction between FMIs and DeFi. Together they plan to hold a workshop in the second half of the year.