Tokenization concepts and implications for central banks (CPMI)
The Bank for International Settlements (BIS) published a Committee on Payments and Market Infrastructures (CPMI) report that sets out the concepts related to digital tokens and programmable platforms. Tokenization arrangements can change existing market structures by providing platform-based intermediation across the end-to-end life cycle of financial assets. While this could decrease transaction costs and enable innovative use cases, the potential of token arrangements to improve the safety and efficiency of the financial system will require sound governance and risk management. The risks typically associated with financial market infrastructures also apply to token arrangements, but they may materialize differently. Developments in tokenization offer an opportunity for central banks to reflect on the role of central bank money in the digitalizing financial system. [Read more at the BIS]
The financial stability implications of tokenization (FSB)
Meanwhile, the Financial Stability Board (FSB) published a report on the potential financial stability implications of distributed ledger technology (DLT) based financial asset tokenization. The report opines that many of the purported benefits of tokenization have yet to be fully proven, may not be uniquely achievable through tokenization, and may involve trade-offs that might negate the benefits. And several vulnerabilities are identified relating to liquidity and maturity mismatch; leverage; asset price and quality; interconnectedness; and operational fragilities. Tokenization could have implications for financial stability if the tokenized part of the financial system scales up significantly, if increased complexity and opacity of tokenization projects lead to unpredictable outcomes in times of stress, and if identified vulnerabilities are not adequately addressed through oversight, regulation, supervision, and enforcement. [Read more at the FSB]
Cash bill pay services and U.S. payment inclusion (Kansas City Fed)
The Federal Reserve Bank of Kansas City published an article by Franklin Noll on U.S. “cash bill pay” services that allow consumers to make digital (e.g., bill) payments with cash at participating retailers. A recent Atlanta Fed survey found that American consumer preferences to pay with cash remain pervasive for various reasons, including the costs and other impediments involved in moving to digital payments, lack of needed identification, former credit or banking problems, and the desire for privacy. Cash bill pay services provide cash payment options to such consumers. The article describes how the two main cash bill pay services (“walk-up” and “barcode”) work, and the costs that may make the service expensive for some. [Read more at the Kansas City Fed]
Upcoming Speaking Engagements:
- Digital Euro Conference 2025, Frankfurt, March 27, 2025. The DEC25 conference will explore the future of money with a focus on CBDCs, stablecoins, tokenized deposits, and the intersection of AI and digital ID. When you register, get 20% off the regular ticket price by using the Kiffmeister20 code! [Find out more and register here]
And just a reminder that I produce a monthly digest of central bank digital currency (CBDC) developments exclusively for the official sector. So (only) if you work at a central bank, ministry of finance or international financial institution (e.g., the BIS, IMF, OECD, World Bank) and who would like to receive it by email on the first business day of every month, please DM me on LinkedIn or email me at john@kiffmeister.com.
