Core Focus: The definition of tokenization, its application to financial assets, and the framework for comparing system designs and weighing efficiency gains against risks.

In-Depth Notes:
Tokenization is a financial innovation that involves representing traditional assets as tokens on a digital platform . This process has the potential to reshape money and markets fundamentally by enabling near-instantaneous, frictionless conversion between interest-bearing securities and money . The Bank for International Settlements (BIS) has highlighted that a common approach for comparing system designs and weighing efficiency gains against risks has yet to be defined, but the importance of developing such an approach is increasingly recognised .

Tokenization as a Transformation of Money:
The tokenization of financial assets represents a fundamental shift in how value is stored, transferred, and managed. Money’s traditional value has stemmed from transaction frictions—the delays and costs of converting assets into purchasing power . As tokenization enables near-instantaneous, frictionless conversion between interest-bearing securities and money, people would no longer need to hold money balances in advance of payments. Instead, they would convert assets to money just-in-time for transactions and immediately back again, causing money holdings to shrink toward zero while money velocity becomes unbounded . This would fundamentally reshape banking, blurring the lines between banks and investment funds, as money transitions from being a store of value to merely a transient settlement instrument within transaction flows .

The BIS Unified Ledger Concept:
The BIS unified ledger concept proposes a shared platform for tokenized assets, tokenized deposits, and wholesale CBDC reserves . This suggests the most likely near-term outcome is a hybrid architecture in which commercial bank money and central bank settlement assets operate on complementary distributed ledger technology (DLT) rails rather than competing ones . The unified ledger would host tokenized commercial bank money (tokenized deposits), tokenized assets (such as securities), and wholesale CBDC , creating an integrated settlement environment.

Practical Implementation:
Several central banks are advancing tokenization initiatives. The ECB has announced that it will accept marketable assets issued using DLT as eligible collateral for Eurosystem credit operations starting March 30, 2026 . These DLT-based assets must meet standard Eurosystem collateral eligibility criteria and be available for settlement in systems compliant with the Central Securities Depository Regulation (CSDR) and reachable via TARGET2-Securities (T2S) . The Eurosystem is also launching a work plan to explore whether DLT-native assets not represented in traditional securities settlement systems could become eligible collateral in the future . Project Agorá, involving major central banks and approximately 40 global financial institutions, is verifying the potential to improve cross-border payment inefficiencies by tokenizing central bank reserves and commercial bank deposits and processing them on a common DLT platform .