June 30, 2023
By Anjali Kochhar
In a recent development, the International Monetary Fund (IMF) and the Bank for International Settlements (BIS) have published separate reports emphasising the potential of tokenisation in the future of the monetary system. While these reports paint a positive picture of tokenisation and its applications, critics argue that it may not be the revolutionary concept it’s made out to be.
Tokenisation, as defined by the BIS, is the process of representing claims digitally on a programmable platform. The IMF and BIS both see tokenisation as a game-changer in the financial world, with the potential to revolutionise central bank digital currencies (CBDCs) and enable the seamless integration of transactions.
However, skeptics argue that tokenisation is merely a distraction and not a substantial improvement over existing financial system. They believe that the focus on tokenisation, especially in the context of CBDCs, may be misplaced. Tokenisation involves trading claims on programmable platforms, and if blockchain technology is utilised, these claims are represented as tokens. Yet, tokens are not just digital entries; they integrate the records of underlying assets with transfer processes and rules.
For instance, in the case of real estate tokenisation, a homeowner’s deed could be represented as a token on a blockchain platform. However, the legal complexities surrounding property ownership can undermine the use case for tokenisation in this context.
The IMF and BIS reports suggest that the institutions are primarily interested in the tokenisation of CBDCs. This would involve creating a unified ledger, serving as a centralising force to ensure stability and the singleness of money. The objective is to establish a common venue where tokenised objects, including money, converge, enabling new types of economic arrangements.
While countries worldwide are researching CBDCs, only a few have implemented such systems. It remains unclear whether tokenisation will gain significant traction in practice or if these discussions will lead to tangible innovations.
Critics argue that tokenisation is not a groundbreaking concept and falls short of being a genuine improvement over existing financial practice. They believe that the current hype around tokenisation diverts attention from more pressing issues in the financial industry.
In conclusion, while the IMF and BIS hail tokenisation as the future of finance, skeptics remain unconvinced. Tokenisation’s true potential and practical implications are yet to be fully realised, leaving room for ongoing debate and exploration. As the financial landscape evolves, the impact of tokenisation and its role in shaping the monetary system will become clearer in due course.
About the author
Anjali Kochhar covers cryptocurrency stories in India as well as globally. Having been in the field of media and journalism for over three years now, she has developed a sharp news sense and works hard to present information that goes beyond the obvious. She is an avid reader and loves writing on a wide range of subjects.