BIS And FSB Release Papers On Tokenization Ahead Of G20 Meeting

According to Cointelegraph, the Bank for International Settlements (BIS) and the Financial Stability Board (FSB) have published a series of papers in anticipation of the Group of 20 (G20) Finance Ministers and Central Bank Governors meeting on October 23 and 24. Brazil, holding the G20 presidency for 2024, has called for discussions on digital currency, following India's lead from the previous year. Both the BIS and FSB released their papers on tokenization on October 22, highlighting common themes despite conducting their studies independently. The papers emphasized that tokenization is still rare and not fully understood, presenting risks similar to those in traditional finance, along with some unique challenges. The FSB noted that tokenization lacks a generally accepted definition and has not been standardized across various initiatives. Issues such as liquidity and maturity mismatch, leverage, asset price and quality, interconnectedness, and operational fragilities were raised. The FSB stated that due to its small scale, tokenization does not currently pose significant financial stability risks. The BIS pointed out that the well-known risks of existing systems, such as credit and liquidity risks, custody, access policies, and operational and cyber risks, also apply to tokenization. These risks may manifest differently due to the effects of token arrangements on market structure, particularly when intermediaries' roles change as previously separate functions are combined on one platform. Despite these risks, the BIS acknowledged potential benefits for safety and efficiency. Both the BIS and FSB recommended increased monitoring and information sharing, and suggested that central banks begin considering regulatory measures for tokenization. India, during its G20 presidency, supported the FSB's recommendations for a global regulatory framework for cryptocurrencies and advocated for more international regulation. The FSB has set tokenization as one of its regulatory priorities for 2024. The BIS is also engaged in numerous tokenization projects within its Innovation Hub, involving many of the world's central banks.