BIS Frames Tokenization as Foundation of Next-Generation Financial System

The Bank for International Settlements (BIS) is urging central banks to take the lead in transitioning to a tokenized financial system built on unified ledgers — while simultaneously leveling sharp criticism at stablecoins.

BIS outlined its vision for the next-generation monetary and financial system. At the heart of that vision lies the tokenization of central bank reserves, commercial bank deposits, and government bonds — integrated through a unified ledger infrastructure.

The concept of unified ledger technology, positioned by BIS as a foundational layer for the future financial system, was introduced in April 2024.

According to BIS, tokenization enables the seamless integration of settlement, messaging, and asset transfer into a single, automated operation — eliminating the frictions, delays, risks, and costs embedded in traditional financial infrastructure. This is especially critical for cross-border transactions, where tokenization could replace complex chains of intermediaries with atomic, end-to-end processes that include built-in AML/CFT compliance mechanisms.

The BIS framework is built around three key components:

1. Tokenized central bank reserves, providing a trusted anchor and serving as the ultimate settlement asset within the system.
2. Tokenized commercial bank deposits, which preserve the two-tier monetary architecture while enabling new functionalities.
3. Tokenized government bonds, providing liquidity and supporting the effective implementation of monetary policy.

The report also highlights several BIS-led initiatives exploring tokenization in practice:

1. Project Agorá, which brings together seven jurisdictions and 43 regulated financial institutions to develop a prototype for cross-border payments using tokenized money.
2. Project Pine is a pilot initiative testing how monetary policy tools — like collateralized lending, interest calculations, and disbursements — can be automated through smart contracts.
3. Project Promissa, which focuses on transforming paper-based sovereign debt instruments into tokenized assets, eliminating manual processing and enhancing transparency.

Without strong leadership from central banks, BIS warns, society could once again face the pitfalls of unsound money—a risk reminiscent of the U.S. Free Banking Era.

The report also delivers sharp criticism of stablecoins such as USDT and USDC. According to BIS analysts, these instruments suffer from several structural flaws:

1. Different stablecoins often trade at varying exchange rates, undermining the principle of money being universally accepted without question.
2. Their issuance requires full pre-funding, which limits monetary elasticity and restricts liquidity flexibility.
3. Stablecoins issued on public blockchains are frequently used in ways that bypass KYC and AML compliance frameworks.

More than 99% of the stablecoin market is denominated in U.S. dollars, raising concerns at BIS about monetary sovereignty. Moreover, stablecoins have shown high volatility — especially during episodes of monetary tightening — posing additional risks to the stability of the global financial system.

It is worth noting that BIS officials had already voiced concerns about stablecoins earlier this year, linking their growing popularity to potential threats to financial stability — particularly in countries where trust in local currencies is weak.

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