IMF Notes

Tokenization—the representation of financial assets and liabilities on programmable digital ledgers—is increasingly shaping financial system developments. The most consequential transformation is occurring within the regulated financial system, including banks, asset managers, and financial market infrastructures, where tokenization can enable atomic settlement, continuous liquidity management, and embedded compliance. This paper argues that tokenization constitutes a structural shift in financial architecture rather than a marginal efficiency improvement. It describes how permissioned shared ledgers, programmable financial assets, and smart contract-based risk management alter the nature of settlement, liquidity, and systemic risk. The paper emphasizes that the long-term success of tokenization depends on anchoring digital finance in public trust through clear policy frameworks and safe settlement assets, robust governance of code, legal certainty, and international coordination. Absent such anchors, tokenization risks amplifying financial instability through speed, concentration, and fragmentation, as contract-based risk management alter the nature of settlement, liquidity, and systemic risk.