DFC

"I could imagine holding bank-issued stablecoins in my digital wallet, but I have a suspicion that in time most people will drift towards tokens backed by central bank reserves. In other words, in a world with a Digital Pound, it’s not clear why anyone would hold Barclays Bunce, CapOne Cabbage, Wells Wonga or Lloyds Lolly."

The European Banking Authority (EBA) published a report to facilitate awareness of tokenized deposits, as well as assess their potential benefits and challenges. The report also aims to promote convergence in the classification of tokenized deposits in contrast with electronic money tokens (EMTs) issued by credit institutions under the Markets in Crypto-Assets Regulation (MiCAR).

The Digital Euro Association (DEA) published a paper that dives into the potential impact of tokenized deposits (TDs) on financial stability, monetary policy, anti-money laundering (AML) and know your customer (KYC) processes, and privacy considerations. The paper offers comprehensive primer into the potential of TDs, alongside considerations on how they could complement and co-exist with other forms of digital money.

The Bank for International Settlements (BIS) published its vision for a "Finternet" of multiple financial ecosystems interconnected with each other, much like the internet. The envisioned system leverages tokenization and unified ledgers, underpinned by a robust economic and regulatory framework, to dramatically expand the range and quality of financial services. The paper provides a blueprint for how key technical characteristics like interoperability, verifiability, programmability, immutability, finality, evolvability, modularity, scalability, security and privacy can be incorporated, and how varied governance norms can be embedded.

UK Finance announced work on a new UK Regulated Liability Network (RLN) experimentation phase with eleven of its members. The UK RLN is envisaged as a common "platform for innovation" across multiple forms of money, including existing commercial bank deposits and a shared ledger for tokenized commercial bank deposits. It will focus on three use cases; payment-upon-delivery for a physical product, the process of buying a home, and digital bond settlement. The experimentation phase will run until summer 2024 and will cover customer and business benefits, technical feasibility via proofs of concept in a technology sandbox, and the legal framework.

UBS and Deutsche Bank have reportedly simulated tokenized deposit payments between the banks as part of the European Central Bank (ECB) wholesale distributed ledger technology (DLT) settlement trials. The Bundesbank’s Trigger solution, that enables blockchain based systems to link to the Trigger Chain, which in turn initiates a payment on the Target2 payment system in central bank money, was used. Adhara, the technology partner of Fnality, provided the orchestration layer that ensures that all the separate settlement legs of the transaction happen atomically. One of the two trails simulated transactions between Deutsche Bank London and UBS in Switzerland involving pounds and Swiss francs, which were settled using euros.

Banco Central do Brasil has reportedly selected Banco Inter alongside Microsoft Brazil, 7COMm and Chainlink to build a trade finance solution as part of the 2nd phase of Brazil’s DREX central bank digital currency (CBDC) experimentation. The solution leverages blockchain technology and oracles to automate supply chain management and improve trade finance processes. The goal of the pilot is to demonstrate the automated settlement of agricultural commodity transactions across borders, across platforms, and via different currencies.

The Reserve Bank of Australia (RBA) and the Digital Finance Cooperative Research Centre (DFCRC) published a consultation paper which seeks industry feedback on a new research initiative, Project Acacia. This project will explore how different forms of digital money and associated infrastructure could support the development of wholesale tokenized asset markets in Australia. The consultation paper seeks expressions of interest from industry in participating in an experimental research phase for Project Acacia, and in joining an Industry Advisory Group for the project. Input is also sought on the technical and functional capabilities of new forms of settlement infrastructure and digital money, including wholesale central bank digital currency (CBDC) and tokenized bank deposits, that could promote well-functioning tokenized asset markets and stability in the financial system.

[September 24, 2024] The Hong Kong Monetary Authority (HKMA) has commenced Phase 2 of its e-HKD exploration programme to delve deeper into innovative use cases and commercial feasibility for new forms of digital money, including e-HKD and tokenized deposits, that can potentially be used by individuals and corporates, within a real-world setting. 11 groups of firms from various sectors will test the settlement of tokenized assets, programmability and offline payments.

Starting in December, selected participants will reportedly be able to use tokenized deposits to make payments at domestic supermarkets and convenience stores. This initiative is part of a comprehensive usability test for a wholesale central bank digital currency (CBDC), conducted by the Bank of Korea (BOK) in collaboration with six major commercial banks. Basically, the BOK will issue CBDC to banks, which will then convert it into deposit tokens for use by consumers at designated retail locations. 100,000 individuals have been selected for the pilot, and participating banks are forming partnerships with retail outlets and developing dedicated digital platforms.

Banco Central do Brasil (BCB) announced the 13 themes that will be trialed during the second phase of the Drex wholesale central bank digital currency (CBDC) pilots. The first phase involved testing processes such as issuing, transferring and settling digital treasury bonds with tokenized commercial bank deposits with wholesale CBDC utilized for interbank settlements. During the second phase, various financial services will be developed via smart contracts on the Drex platform created by 16 consortia or companies. The platform is a permissioned Ethereum network using Hyperledger Besu

The Bank for International Settlements (BIS) together with seven central banks will explore how tokenization of wholesale central bank money and commercial bank deposits on programmable platforms can improve the monetary system. Project Agorá's primary area of exploration will be to increase the speed and integrity of international payments, while lowering costs by building on the BIS's proposed unified ledger concept. The BIS will issue a call for expressions of interest to private financial institutions, with the Institute of International Finance (IIF) acting as the intermediary and convener, to join the project.

The Hong Kong Monetary Authority (HKMA) has established the Project Ensemble Architecture Community to work with the industry to shape standards and provide suggestions to support the development of Hong Kong's tokenization market. The Community aims to develop a set of industry standards to support interoperability among wholesale central bank digital currency (WCBDC), tokenized money and tokenised assets. The Community will also assist in the design and implementation of a sandbox to launch by around mid-2024.

The Bank of Japan (BOJ) published a survey of global deposit tokenization projects. With the emergence of stablecoins, these initiatives seem to seek an extension of functionality in payment and settlement systems by applying new technologies, such as distributed ledger technology (DLT), to bank deposits as a traditional means of payment. The main reason such initiatives prefer leveraging deposit money is said to be its affinity with the two-tier monetary system and possibly with existing laws or regulations. However, there remain some issues that require further clarification on how payments with tokenized deposits are categorized in the private law system, and how smart contracts provide implications for non-functional requirements and legal certainty.

The European Commission (EC) launched a consultation to evaluate whether the Markets in Crypto‑Assets Regulation (MiCA), implemented in 2024, remains fit for purpose given rapid changes in digital asset markets and global regulation. It seeks feedback on MiCA’s core building blocks, including rules for crypto‑assets, asset‑referenced tokens, e‑money tokens, their issuers and service providers. There is an open public consultation and a more technical targeted consultation for industry and public authorities. Responses are invited until August 31, 2026 and will inform future European Union (EU) policy on digital assets. [EC]

In a forthcoming Yale Law Journal article, C. Odinet, A. Tosado and Y. Yadav develop a four-element legal framework for "moneyness" and apply it to stablecoins before and after the U.S. GENIUS Act. Moneyness requires conjunctive adequacy across the nature and substance of the claim, safety, discharge capacity, and negotiability, with deficiency in any element undermining the whole. The authors deconstruct the contractual and reserve structures of dominant issuers (Tether and Circle) to show that redemption is conditional and limited by privity, holders lack proprietary interests in backing reserves, and bankruptcy treatment remains ambiguous. These deficiencies matter because they force holders to assess both issuer and custodian solvency, undermine finality in payment discharge, and expose claimants to credit risk incompatible with money's core function of circulating at par without investigation. The GENIUS Act of 2025 mandates reserve requirements and redemption frameworks but fails to resolve key vulnerabilities. It compels reliance on third-party custodians rather than Federal Reserve accounts, contains internally contradictory bankruptcy provisions, and provides no finality rules specifying when transfers extinguish obligations. The authors propose five targeted reforms; Federal Reserve master account access for qualifying issuers, industry-funded insurance, a secured interest regime replacing flawed bankruptcy rules, statutory finality provisions for both direct and intermediated transfers, and express tokenization of redemption rights. [Odinet Tosado and Yadav]

Stephen Cecchetti and Kermit Schoenholtz argue that a modified Gresham’s Law in stablecoins implies that regulation targeting issuers and intermediaries, rather than the tokens themselves, will systematically favor pseudonymous, weakly supervised instruments. They emphasize that Bank Secrecy Act–style rules and recent legislative proposals continue to rely on know‑your‑customer at entry and exit points, leaving cross‑border, self‑custodied dollar tokens largely outside effective control and limiting the impact of wallet blacklisting and analytics. This matters because as long as tokens function as bearer‑like digital cash, criminals can arbitrage differences in national enforcement, making stricter regulation of compliant issuers perversely strengthen “bad” offshore rivals. The authors therefore highlight the need for “compliance‑by‑design” instrument architectures and potentially new legal categories that embed screening and traceability into the token layer itself while preserving some privacy, raising unresolved questions about feasibility, governance, and the required degree of international regulatory coordination. [Cecchetti and Schoenholtz]

[February 2026] The Federal Reserve Bank of New York (FRBNY) published a paper by X. Huang and T. Keister that uses a new monetarist general equilibrium model to examine how stablecoins backed by safe assets versus tokenized bank deposits affects interest rates, investment, and welfare. Deposit insurance creates a risk-shifting incentive for banks, corrected by a regulatory tax on deposit issuance. Stablecoin issuers, being competitive and narrow-balance-sheet, face no such tax and earn zero profit in equilibrium. When stablecoins compete, they bid deposit rates upward toward the safe asset return, raising banks' funding costs and crowding out lower-return risky lending; when prohibited, deposit rates fall and banks expand credit but may over-invest in risky projects. The paper shows that allowing only tokenized deposits raises welfare when regulatory costs are high and moral hazard is limited, whereas allowing only stablecoins is preferable when moral hazard is severe and regulation insufficient, and competition between the two is optimal in intermediate cases — a result the authors connect explicitly to historical narrow banking debates. [FRBNY]