BOK Deputy Governor Kwon Minsu: "Tokenization marks a major shift in financial infrastructure... Need a balanced look at efficiencies and vulnerabilities"

At the first public presentation of the tokenization chapter in the IMF's Global Financial Stability Report
"Faster, more efficient financial infrastructure must be matched by
soundness, safeguards and policy frameworks capable of keeping pace"

"It is time to take a balanced look at both the efficiencies and vulnerabilities of financial asset tokenization."

Kwon Minsu, Deputy Governor of the Bank of Korea. Bank of Korea

Kwon Minsu, Deputy Governor of the Bank of Korea, made the remarks in his opening address at an event on the International Monetary Fund (IMF)'s Global Financial Stability Report, titled "The Expansion of Tokenization: New Efficiencies and Vulnerabilities," held at the Bank of Korea in Jung-gu, Seoul, on Oct. 8.

Deputy Governor Kwon stressed that the current moment, as financial asset tokenization gains momentum, marks a turning point at which financial infrastructure can take a major step forward. "The history of finance has been a journey to reduce the costs and frictions associated with transactions," he said. "Tokenization, which uses distributed ledger technology, continues that trend, but the scale of change is quite different from what we have seen before." This is because transaction terms and rules for execution are embedded together in the ledger, allowing multiple stages of trading, clearing and settlement to take place simultaneously.

"The IMF's Global Financial Stability Report (GFSR), which has long assessed the stability of the global financial system and identified potential risks early, has now focused on the expansion of tokenization. This signals that tokenization has reached a stage where it must be given significant consideration in terms of financial system stability," he said.

Tokenized financial assets are rapidly expanding their reach across the global financial ecosystem, particularly in the capital markets of the United States and Europe. In Asia, actual transactions involving tokenized deposits as a means of payment are increasing alongside the development of infrastructure. South Korea also announced a roadmap for issuing tokenized securities last month. The second phase of Project Hangang is scheduled to get underway in the fourth quarter of this year. Next year, the Bank of Korea and the government plan to work together on a pilot project to test the tokenization of government bonds. "To fully realize the potential benefits of tokenization, we need to take a balanced look at the new efficiencies it creates and the vulnerabilities it introduces, as the IMF has pointed out," Deputy Governor Kwon stressed.

He said that Asian countries, in particular, should pay closer attention to the report. As Asia is at the heart of global supply chains, faster settlement of financial transactions and lower intermediation costs are expected to bring significant benefits to both the real economy and financial markets. At the same time, Asia has experienced sharp capital outflows in the past. "The limited trading hours of existing infrastructure, the involvement of multiple intermediaries, and settlement processes that can take several days may reduce efficiency in normal times. However, they have also served as buffers, giving policymakers time to assess the situation and respond during periods of market instability," Deputy Governor Kwon said. "As tokenization becomes more widespread, responding after the fact may become more difficult, so appropriate frameworks for preventive action need to be put in place."

Deputy Governor Kwon stressed: "To reduce lap times in an F1 race, a powerful engine that can accelerate on the straights is not enough. To reach the finish line faster, a car also needs a sturdy chassis that can withstand the speed, tires with enough grip for safe cornering, and brakes that can slow it down at the right time. The same is true of tokenization: Along with building faster and more efficient financial infrastructure, we need soundness and safeguards capable of withstanding that speed, as well as a policy framework that can be activated promptly when needed."

This content was produced with the assistance of AI translation services.