BOK, IMF Release Financial Asset Tokenization Report: "Easing Key Constraints"

IMF's Global Financial Stability Report Features "Financial Asset Tokenization" for the First Time

The Bank of Korea (BOK), in collaboration with the International Monetary Fund (IMF), on October 8 unveiled for the first time its outlook on and assessment of vulnerabilities in the “financial asset tokenization” sector of the IMF’s Global Financial Stability Report (GFSR).

The BOK held an event that day at the BOK Annex in central Seoul to present the GFSR section titled “The Rise of Tokenization: New Efficiencies and Fragilities.” The GFSR assesses risks and vulnerabilities in the global financial system and is published twice a year, in April and October. This is the first time a section on tokenization has been included in the report.

Tokenization, which involves recording financial assets or liabilities on a programmable distributed ledger, is considered to have the potential to transform financial markets. It can consolidate on a distributed ledger functions that were previously carried out by multiple intermediaries, reducing the need for reconciliation, increasing transparency and enabling greater automation.

Accordingly, in tokenized systems, stronger network effects mean that both benefits and risks grow as the number of assets, participants and payment methods using distributed ledgers increases.

The IMF said its analysis of tokenized stock markets found empirical evidence of new benefits and risks. Tokenized bonds reduced issuance costs and narrowed bid-ask spreads, improving liquidity, compared with conventional bonds. However, as tokenization expands, links with the traditional financial system may strengthen, and leverage and liquidity risks may increase, amplifying the impact of shocks.

The IMF noted in the report that tokenized asset markets are still small and fragmented. It said that easing four key constraints - legal certainty, regulatory clarity, interoperability and the availability of settlement assets - will be critical to their future growth.

On legal certainty, the IMF said that laws and cross-border rules must be established to cover the rights and claims associated with tokens, as well as the full lifecycle of financial assets, including issuance and redemption. It also said that applying existing sectoral regulations according to the nature of each token, in line with the principle of “same activity, same risk, same regulation,” would prevent regulatory arbitrage. In addition, it called for policy sandboxes to review existing regulations and improve regulatory alignment across countries.

The IMF stressed the need to establish common standards for settlement systems to enable the smooth transfer of assets and money between platforms and ensure interoperability. Given the importance of central settlement networks, it also called for the use of central bank money, support from authorities for the development of payment methods, and sound management of settlement infrastructure.

To promote financial stability as tokenization expands, the IMF said efforts to monitor and mitigate operational, governance and infrastructure risks should be strengthened. It also emphasized the need to assess and manage the effects of atomic settlement, collateral reuse and procyclical deleveraging on liquidity. In addition, it called for stronger monitoring of links between tokenized and traditional financial markets, as well as circuit breakers and liquidity safeguards to support tokenized trading.

The event was attended by Kwon Minsoo, Deputy Governor of the Bank of Korea; Athanasios Vamvakidis, Deputy Director of the IMF’s Monetary and Capital Markets Department; Emily Kwak, a director at BlackRock; Masaki Bessho, Deputy Director of the Payment and Settlement Systems Department at the Bank of Japan, who oversees digital currency; and Yoon Seongkwan, head of the BOK’s Digital Currency Division.

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