Financial stability implications of tokenisation

Overview

Tokenisation, using distributed ledger technology (DLT), is emerging in financial markets, offering potential benefits like improved efficiency and transparency. However, it poses financial stability risks, including liquidity mismatches and operational fragilities.

Key Insights

• Tokenisation Growth: Tokenisation is small but growing, with examples like tokenised bonds by the European Investment Bank.
• Financial Stability Risks: Risks include liquidity mismatches, leverage, asset price risks, interconnectedness, and operational fragilities.
• Regulatory Challenges: Current regulatory frameworks may not adequately address these risks, necessitating improved oversight and cross-border cooperation.

Why It Matters

Tokenisation could transform financial markets but also introduce new risks. Understanding these risks is crucial for maintaining financial stability.

Actionable Implications

• Enhance regulatory frameworks to address tokenisation risks.
• Improve cross-border regulatory cooperation.
• Increase monitoring and data collection on tokenisation initiatives.