Today, the Financial Stability Board (FSB) released a roadmap to itself and other standard-setting bodies revealing that asset and currency tokenization is currently being explored.

Separate from a long list of crypto assets and stablecoin stocks was tokenization “related” work. He revealed that the FSB is exploring current and planned asset tokenization projects to assess the implications for financial stability. He also wants to see if there are policy implications for the FSB Committee that assesses vulnerabilities in global financial systems, currently chaired by Nellie Liang of the US Treasury. In addition, he could pass any problems identified to the committee for regulatory cooperation. Work has started and will be completed in 2024.

Impact of tokenization on central banks

Separately, the Committee on Payments and Market Infrastructure (CPMI) is exploring “the benefits, risks, and challenges for central banks of a tokenized 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 pointed to a positive approach to tokenization. It outlines the potential for tokenized CBDCs to sit on the same network as tokenized bank deposits and tokenized assets, creating huge efficiencies and 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 multiple platforms on which CBDCs sit. However, automated on-ramps and off-ramps could remove excess funds from DLT funds that are not being used. Alternatively, there is the concept of a unified ledger, with a version being tested as the Regulated Liability Network.

Another concern expressed by the Bank of Italy is the issuance of CBDCs on multiple platforms. The decentralization of issuance makes supervision difficult. Once again, automation could play a big role here.

IOSCO and CPMI explore DLT for FMI

There is other joint work by the International Organization of Securities Commissions (IOSCO) and the CPMI to identify the risks of financial market infrastructures (FMIs) using the 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.