IMF, World Bank and BIS partner to tokenize financial instruments

Reuters reports that this marks the first joint effort of these institutions in exploring tokenization, a process that involves converting traditional assets into uniquely coded 'tokens' usable in more efficient systems. The partnership will also involve Switzerland's central bank, known for its pioneering work in tokenization. 

Initially, their focus will be on streamlining paper-based processes, particularly in cases where affluent nations contribute to the World Bank's funds aimed at supporting less developed regions. The conventional 'promissory note' representing the original pledge is a target for tokenization, aiming to enhance the ease of transfer when necessary. 

Representatives from BIS cited by Reuters shared insights during a conference hosted by the Atlantic Council think tank in Washington. They emphasised the collaborative goal of simplifying the process of allocating development funds to emerging economies. Additionally, they highlighted the potential of tokenization to encode policy and regulatory requirements into a common protocol, addressing challenges such as international money laundering. 

Officials also addressed the topic of central bank digital currencies (CBDCs), stressing the need for global rules and technology standards to facilitate their seamless integration worldwide and interoperability with existing payment systems. They raised questions regarding the timing of implementing these standards and their adaptability to ensure compatibility with non-CBDC systems, acknowledging the complexities involved in their development and adoption.

IMF’s efforts to launch a CBDC platform

In June 2023, the International Monetary Fund has revealed ongoing efforts toward the development of a platform dedicated to facilitating transactions involving central bank digital currencies (CBDCs) between nations. 

At the time, IMF representatives advocated for a unified approach to CBDCs, emphasising that these digital currencies should not remain isolated within national boundaries. The objective was to establish interconnected systems that enhance transaction efficiency and fairness on a global scale. In pursuit of this goal, the IMF was conceptualising a global CBDC platform. 

To achieve global interoperability, the IMF urged central banks to reach consensus on a shared regulatory framework for digital currencies, as the absence of such an agreement could lead to a void that might be occupied by cryptocurrencies. The IMF also underscored the potential underutilisation of CBDC capacity if countries opt for domestic deployment only, bringing up the importance of a collaborative and globally connected approach.