IMF says policy choices will determine whether tokenization strengthens or fragments the financial system

Policy decisions on money, market infrastructure, and legal frameworks will determine whether tokenization strengthens or fragments the financial system as assets migrate onto shared digital ledgers, IMF Monetary and Capital Markets Director Tobias Adrian said on Thursday.

The shift goes beyond faster payments and programmable assets, Adrian wrote in an IMF blog post, arguing that moving financial assets and liabilities onto common ledgers compresses execution, clearing, and settlement into simultaneous processes governed by software. 

The transition could also concentrate risks in platforms, code, and market infrastructure providers rather than the balance sheets of traditional intermediaries, he added. 

According to the report, three forms of settlement assets are emerging in a tokenized economy, including tokenized bank deposits, stablecoins, and tokenized central bank reserves. 

Adrian said tokenized deposits retain existing banking frameworks while enabling atomic settlement and more efficient liquidity management, though continuous settlement increases the need for real-time liquidity backstops.

Stablecoins provide programmability and global reach but depend on reserve quality, market liquidity, and issuer resilience to maintain parity with other forms of money, he wrote. 

On tokenized central bank reserves, the IMF economist said the instruments remove credit risk from settlement assets but require central banks to operate or oversee programmable infrastructures beyond traditional payment systems.

Effect on banks and broader risks 

Adrian said tokenization will alter banks rather than eliminate them. Tokenized deposits could combine payments, client settlement, and treasury functions on shared ledgers, while tokenized lending embeds interest accrual and collateral requirements into smart contracts and allows continuous risk monitoring.

Capital markets face a similar shift, according to the report. Tokenized securities combine issuance, trading, settlement, custody, and compliance within integrated workflows, reducing counterparty risk while increasing continuous liquidity demands and automated margin requirements.

“Collateralized markets may be among the earliest beneficiaries,” Adrian wrote. “High-quality assets can be mobilized quickly and across platforms. But when infrastructure becomes the central hub, governance failures become systemic events.”

The report said permissioned shared ledgers could concentrate activity on fewer platforms, improving liquidity and operational efficiency while increasing the importance of cybersecurity, resilience, and crisis management. Adrian also identified interoperability as a critical requirement, noting that weak links between platforms could trap liquidity and reintroduce risks across the financial system.

Adrian added that instantaneous, around-the-clock settlement challenges existing market structures built around business-day cycles and may require liquidity backstops capable of operating directly on tokenized infrastructures. 

The report added that oversight frameworks will need to extend beyond institutions to smart contracts themselves, while legal systems must clarify ownership rights, settlement finality, and jurisdictional standards.

For emerging and developing economies, Adrian said tokenization could lower the cost of cross-border payments and improve market access, but also accelerate capital movements and currency substitution if privately issued global stablecoins gain wider use. The report noted that strong domestic frameworks and international coordination remain essential safeguards.