BIS Vice President: How to Utilize Tokenization for Deposits

Editor’s Note: This news was released on the National Clearing website and is a speech by Ms. Andréa M Maechler, Vice President and Acting Head of the BIS Innovation Hub, delivered at the Singapore FinTech Festival on November 12, 2025. This article is translated by the Asia-Pacific Institute for Future Finance.****

The full text of the speech is as follows:

Content Summary:

Tokenization challenges our understanding of currency and promises significant leaps in the way financial systems operate. Understanding the technology behind tokenization, as well as the opportunities and risks it presents, is crucial. Tokenization introduces the possibility of creating two distinctly different worlds: private permissioned platforms, governed and regulated by trusted entities; and public permissionless platforms, operating in an open, decentralized environment with limited regulation and greater risks. The latter is largely uncharted territory that requires comprehensive and rigorous analysis to understand how these different worlds can coexist. Central banks, as guardians of the financial system, must ensure that the monetary system keeps pace with technological advancements while protecting its most valuable asset: trust in currency. Today, the characteristics that constitute trust in currency and financial stability are closely linked to the role of deposits. In the future, tokenization is expected to extend the advantages of time-tested systems into a tokenized programmable world, benefiting a broader economy.

Introduction

Good afternoon.

It is a great honor to celebrate the 10th anniversary of the Singapore FinTech Festival with everyone.

This year's theme “The Technological Blueprint for the Next Decade of Finance” is perfectly appropriate. In a world of rapid technological change, innovation is reshaping financial services. Over the past few decades, we have achieved digitization. In the next decade, we will undergo tokenization.

Distributed Ledger Technology (DLT) — and the broader tokenization — not only challenges our views on currency; it also promises another significant leap in the way the financial system operates. Today's financial transactions are recorded in electronic account ledgers and updated centrally by trusted intermediaries. Tokenization creates digital tokens that represent assets existing on programmable decentralized platforms, with the potential to expand the diversity of economic arrangements just as the shift from cash to electronic currency did.

But technology is rarely just about technological change; it is about pushing new boundaries. In the case of tokenization, one of the new frontiers is the possibility of creating new types of programmable currencies and assets. Understanding the technology behind tokenization, as well as the opportunities and risks it brings, is crucial. For central banks, as guardians of the financial system, the monetary system must keep pace with technological advancements, and it must maintain its most valuable asset: trust in the currency. This requires identifying the fundamental principles that foster trust and stability and understanding how these principles translate within the tokenization ecosystem.

Looking to the future, please allow me to take a step back and re-examine the foundations of today's financial and monetary systems.

The current two-tier system

The core of the financial system is a two-tier architecture. This system combines the advantages of the central bank as a guarantor of monetary trust and financial stability, and the advantages of financial institutions as private currency issuers to meet the credit needs of the private sector. Let me explain with a highly stylized image.

The traditional dual-tier system today provides a clear division of roles among central banks, financial institutions, and the private sector.

Figure 1

At the core of the system (the inner red circle in Figure 1), the central bank issues and provides central bank money in the form of cash (displayed as C in the outer layer), as well as providing reserves that are only available to commercial banks (displayed as R in the core). Central bank money is made available to the public through banks. In certain jurisdictions, some regulated non-bank institutions may also hold reserves.

Central banks are crucial for maintaining trust in the currency. They achieve this in three ways: (i) by safeguarding the purchasing power of the currency through monetary policy; (ii) by maintaining financial stability through appropriate regulation and supervision (as well as their role as a lender of last resort), ensuring that the currency can be sustained over the long term; and (iii) by enforcing payment system oversight and operating wholesale payment systems, ensuring that the currency can be used for payments when needed.

Deposit institutions such as commercial banks provide credit to the private sector by issuing private currency (Layer D in Figure 1). They achieve this by crediting the accounts of deposit holders. These deposits can then be used for payments in the real economy (the outer layer of Figure 1). In this sense, banks act as interfaces for the real economy, providing credit to households and businesses and determining economic conditions.

Main Features of Deposits

Trust in currency and financial stability is a fundamental characteristic of a sound and vibrant economic and financial system. Without this trust, no economy can thrive. Today, the features that support monetary trust and financial stability are also closely linked to the role of deposits (see Figure 2).

Deposits have key attributes that support trust in currency and financial stability.

Figure 2

● Deposits reflect the principle of the singularity of currency, which is the foundation of trusted currency. Singularity refers to the ability of private currencies issued by different deposit institutions to be “unconditionally” exchanged at face value.

How does this work in practice? Uniqueness benefits from the central bank's ability to issue risk-free assets (in the form of central bank reserves), allowing banks to settle their obligations on transactions in a final and irrevocable manner. Banks do not directly exchange deposits with each other; rather, they exchange deposits for central bank reserves, which other banks readily accept. The ability to settle transactions in risk-free central bank reserves ensures that institution-specific deposits are unconditionally accepted throughout the financial system.

● The deposit account system helps to ensure the financial integrity of funds. As trusted intermediaries, banks and other financial institutions are required to perform key control functions on their held accounts and the flow of deposits in those accounts (such as customer due diligence, anti-money laundering, counter-terrorism financing (AML/CFT) checks, and fraud monitoring). By implementing key controls on deposit flow accounts, today's account-based financial system helps to maintain the financial integrity of the financial system.

● The elasticity of deposits reflects the ability of banks to provide credit to the private sector through the issuance of private money in the form of deposits (see Figure 3). Banks are able to issue private money in the form of deposits for economic payments, which is a unique feature of a two-tier financial system. This privilege is neither free nor unlimited. Banks must have sufficient risk absorption capacity, meet stringent regulatory requirements, and be subject to the obligation of holding enough central bank reserves to settle transactions. The ability of banks to provide credit is also influenced by the monetary stance set by the central bank. If excessive credit expansion is likely to fuel inflation, then monetary tightening will prompt banks to reduce lending, thereby decreasing the creation of deposits. The elastic nature of deposits helps banks respond to the demands of the private sector while reflecting the monetary stance of the central bank and the prudent regulatory framework.

The Role of Deposits - Private Money Creation by Commercial Banks

Figure 3

The role of tokenization

I emphasized the core role of deposits in today's financial system. A key question for the future is how deposits will evolve to take advantage of tokenization.

Tokenization transforms the static records of financial assets into verifiable digital tokens that can run on programmable platforms. The programmability and composability of tokenization platforms mean that multiple steps and transactions can be automated and bundled, leading to significant efficiency gains and new contractual possibilities. For example, programmable platforms support atomic settlement, integrating messaging, reconciliation, asset transfer, and cash settlement into a seamless operation. Simplified around-the-clock atomic settlement reduces complexity, reconciliation costs, and risks, potentially delivering massive efficiency improvements.

The Project Agorá of the BIS Innovation Hub is a concrete example of how programmable platforms can improve cross-border payments. It is a pioneering project that brings together seven central banks and over 40 regulated financial institutions. It combines tokenized deposits and tokenized reserves on a programmable platform, thereby integrating multiple steps involved in cross-border payments into a seamless atomic transaction with central bank currency settlement (Figure 4).

Tokenization brings atomic settlement - projects explore how to settle tokenized deposits in an atomic manner through cross-border tokenized reserves.

Figure 4

In addition to payments, tokenization has opened the door to new business models, products, and services. For example, the bond market is a promising market for tokenization. Government bonds have an outstanding value of $80 trillion, making it the largest and most critical asset market globally, with related experiments showing immense potential. Another example is the combination of programmable tokens with artificial intelligence agents to enable new use cases such as machine-to-machine micropayments or complex trade financing invoices. Some influential applications of tokenization may exist in corners of the financial sector that are overlooked. For instance, in the “Commitment Project,” the BIS Innovation Hub is collaborating with the World Bank and other institutions to tokenize traditional paper promissory notes—tools used by governments worldwide to fund multilateral development banks and other critical development projects.

Tokenization is accelerating globally, thanks in part to the recent emergence of legal and regulatory frameworks for tokenized currencies and assets (including stablecoins). Although momentum is building, the transformation is still in its early stages, and the deployment of tokenized deposits remains limited.

Can tokenized deposits demonstrate the same appeal as traditional deposits?

So, why has the development of tokenized deposits progressed slowly to date? A key reason is that tokenized deposits are not yet easily interoperable, lacking the relevant technological infrastructure. This can be illustrated by the example of “multifaceted fragmentation” in Figure 5, where banks operate their platforms independently.

In order to popularize tokenized deposits, banks need to find ways to achieve interoperability between various institutions, just as they found ways to operate cross-bank retail payment systems. This can be achieved by making individual tokenized banking deposit platforms interoperable, as exemplified by the “multi-interoperability” example in Figure 5.

Alternatively, banks can also develop a common platform to issue and settle their tokenized deposits. This can be illustrated by the example of a “shared consortium,” where banks share a common programmable platform.

To ensure the uniqueness of large-scale funds, tokenized deposits require a tokenized and risk-free settlement asset—just like deposits use central bank reserves for wholesale payments between banks. For example, this can be achieved by connecting a DLT ledger with a traditional real-time gross settlement (RTGS) system (as shown in the “shared RTGS” example in Figure 5) or by directly issuing tokenized central bank reserves on the platform (as in the “TR” in the “shared union” example in Figure 5). All these options are actively being tested by central banks, including under the BIS Innovation Hub project.

The Two-Tier Financial System in a Tokenized World - How to Achieve Interoperability of Tokenized Deposits

Figure 5

The tokenized ecosystem also needs to be seamlessly integrated into the existing financial system. This is because the financial value of assets is highly related to the economic entities' ability to convert these assets into trusted currency, regardless of the underlying technology. This convertibility requires not just technological connections but also the integration of fundamentally different worlds: merging real-time tokenization platforms with existing systems designed for wholesale settlement and coordinating account-based architectures with decentralized ledger environments. This means redesigning infrastructure and operational processes. To support financial integrity, the BIS Innovation Hub is collaborating with the Monetary Authority of Singapore and other central banks to explore how to extend the programmable compliance of digital assets into the “Mandala Project.”

How about other tokenization tools?

Distributed ledger technology and tokenization have brought about an interesting paradigm shift: the same technology can be used to create completely different worlds. Importantly, these worlds may not be easily traversed. This is significant from a trust perspective, as tokenization may open the door to new forms of currency (such as stablecoins). However, to truly be considered currency, these tokenized tools must ensure that they meet the requirements of uniqueness and integrity of money, in order to maintain public trust and financial stability. To assess these attributes, it is important to examine them from the perspective of the world in which the tokenized tools exist.

DLT technology, a different world

The different worlds (or types of platforms) that DLT technology can create vary along two key dimensions (Figure 6): the public/private dimension, which defines access to the platform (private is restricted, public is open to anyone); and the permissioned/permissionless dimension, which defines the level of control or permission over operations on the platform.

A DLT technology, a different world

Figure 6

To simplify, I will focus on two quadrants - the private permissioned world in the upper left corner and the public permissioned world in the lower right corner.

Today, tokenized deposits are typically issued through a “private permissioned” ledger. This is a DLT ledger (or ledger network) designed, operated, owned, and managed by banks. Access is limited to invited participants, and the DLT ledger is operated by a group of well-known and trusted operators, with a clear accountability framework and safeguards in place, along with regulatory controls. In this sense, private permissioned networks operate in the middle layer as shown in Figure 5.

In contrast, crypto assets and the vast majority of stablecoins operate on “public permissionless” ledgers. These DLT ledgers are open networks maintained and operated by a group of unknown participants who coordinate operations through consensus protocols. While this open and decentralized architecture facilitates novel innovations, it also reflects a starkly different world—one that exists with new risks, transactions are open to everyone, and there are no clear operators or central regulators. Poor design is difficult to easily reverse, code vulnerabilities can have systemic impacts, and accountability during network attacks (as well as the allocation of responsibility) may not be sufficiently clear.

Consider individuals who publish on public platforms without permission; they must pay attention to risks to ensure safety, trust, and resilience. In some cases, safeguards and technical workarounds can be embedded in smart contracts or the technology stack itself, such as compliance. However, ultimately, a well-functioning ecosystem is not just about high-quality technology. Its soundness depends on its governance. How governance operates in the context of public permissionless platforms is not yet fully understood. In contrast, the financial market infrastructure and systems in a two-tier system are typically managed and operated by authorized and regulated entities, which means they can connect to the core (the first layer in Figure 7). Currently, unregulated stablecoins exist in the outer layer. It remains to be seen whether jurisdictions with robust stablecoin regulatory frameworks will change this situation over time.

It is important to build a world that issues a specific form of currency.

This brings us back to a key feature of trusted currency, which is the singularity of currency, that is, the ability to unconditionally exchange private currencies. Historically, singularity was achieved through interbank deposit exchanges, where deposits were settled in central bank reserves (i.e., connecting the intermediate layer to the core in Figure 7). In a world where tokenized deposits operate on private permissioned platforms, central banks are actively exploring options to create such links, including settling tokenized reserves within the platform through traditional RTGS systems or settling reserves outside the platform via traditional RTGS systems.

It is important to build a world for issuing a specific currency - especially in terms of trust in currency.

Figure 7

So, in Figure 7, how is uniqueness achieved in the public permissionless DLT platform that is still at the outer layer of a two-layer system (or stablecoins issued on such platforms)? This is still a new area that requires comprehensive and rational analysis to understand under what conditions platforms in different worlds can integrate into a vibrant and dynamic tokenized ecosystem.

Conclusion

The future may not belong to a certain form of currency, just as it never belonged to one in the past. It may belong to a spectrum from cash to digital currency.

Looking forward to the next decade in finance, tokenization represents a transformative innovation. We need to embrace the opportunities of tokenization while proactively addressing the risks and providing strong technical and policy safeguards. As technology changes the fundamental structures of our currency and financial systems, we must uphold the importance of monetary trust and reaffirm our commitment to inclusivity, resilience, and the integrity of the financial system. Tokenization is not about discarding what is effective. Through tokenization, we can bring the advantages of today's systems into a tokenized and programmable world, benefiting society and the broader economy.

We call on central banks, regulatory agencies, financial institutions, and the industry to work together to support the transition to a safe, efficient, and inclusive financial system, allowing tokenized and non-tokenized currencies and assets to interact safely and efficiently, addressing key challenges and fulfilling the commitments of tokenization. The Bank for International Settlements is committed to being a global convener and catalyst for innovation, working together with central banks, regulatory agencies, standard setters, banks, and the industry.