International agencies will report to G20 officials about tokenization
The Bank for International Settlements (BIS) and the Financial Stability Board (FSB) both issued a series of papers at the meeting of the Group of 20 (G20) finance ministers and central bank governors on October 23 and 24.
Brazil holds the presidency of the G20 of the world's major economies for 2024 and, like India last year, has called for discussions about digital currency.
Both the BIS and the FSB released papers on the token on October 22. Although their studies were conducted independently, the BIS and FSB emphasized common themes.
Token: New, but maybe not that different.
While both papers are mostly overviews, two ideas are emphasized: tokenization is rare and not fully understood, and presents the same risks as traditional finance, with some exceptions. FSB
“Tokenization does not have a generally accepted meaning, […] And the word is not used in a standardized way in relation to different initiatives.
The FSB raised issues such as liquidity and maturity imbalances, leverage, asset value and quality, interconnection and operational deficiencies. “Due to its small scale, the token currently does not pose material financial stability risks,” he added. BIS said:
“The known dangers of the existing systems will apply [to tokenization]Such as credit and liquidity risks, custody, access policies, operational and cyber risks.
“These risks can arise in a number of ways due to the impact of tokenization on market structure, such as the changing role of intermediaries when previously disparate activities are combined on a single platform,” he added.
BIS concluded that tokenization could provide potential benefits for security and efficiency in addition to its risks. The FSB recommends further monitoring and information sharing. Both central banks have advised to think about how to control it.
Source: Swift
Balancing needs globally
India supported the FSB's recommendations for a global regulatory framework for crypto when it held the presidency of the G20 and expressed its desire to see more international regulations.
The FSB has set tokenization as one of its regulatory priorities for 2024. BIS has a number of pilot projects in the Innovation Hub involving many of the world's central banks.
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