Global: IMF warns tokenisation could reshape financial risks, monetary policy

The International Monetary Fund has warned that monetary policy frameworks and financial regulatory systems must evolve rapidly to keep pace with the growing adoption of tokenisation, as risks traditionally held on banks’ balance sheets increasingly shift to service providers and market infrastructure operators.

In a recent paper, the IMF acknowledged tokenisation’s potential to transform the global financial system by enabling faster settlement, lower transaction costs, cheaper payments, and programmable financial assets. However, it cautioned that these benefits also introduce structural changes that could alter how financial risks emerge and spread.

According to the fund, tokenisation is gradually replacing the centralised databases and sequential processes that have historically underpinned securities markets with decentralised, real-time infrastructure.

While this transition reduces friction, cost, and settlement delays, the IMF noted that it also removes traditional safeguards and operational buffers that have long helped absorb shocks within the financial system.

“Liquidity demands materialise in real time, collateral calls can be automated, and failures can propagate faster than institutions or supervisors can respond,” the IMF stated.

The institution warned that risk exposure, once largely borne by the balance sheets of individual financial institutions, is increasingly becoming concentrated within digital platforms, smart contract systems, and the code governing tokenised transactions.

According to the IMF, this shift fundamentally challenges existing regulatory structures, which were designed around reconciliation cycles, reporting timelines, and delayed settlement frameworks.

The fund stressed that policy decisions taken today will significantly determine whether tokenisation strengthens financial resilience or contributes to systemic fragmentation.

The IMF also clarified that tokenisation is unlikely to eliminate banks from the financial system. Instead, it is expected to reshape how banks fund operations, manage liquidity, and absorb risk.

A key area of concern highlighted in the report is the growing role of smart contracts, which increasingly automate transaction execution and embed financial rules directly into code.

The IMF argued that regulatory oversight must therefore extend beyond financial institutions to include the underlying code and governance mechanisms powering tokenised markets.

Legal certainty was identified as another critical requirement for successful tokenisation. The IMF said market participants need clarity on whether tokenised records represent definitive ownership, whether settlement finality is legally enforceable, and which jurisdiction’s laws apply to digital transactions.

Without such legal clarity, the fund warned, tokenised financial markets could remain fragmented and fail to achieve mainstream adoption.

The report also highlighted broader policy concerns, including interoperability between distributed ledger systems, governance of protocol code, liquidity backstop arrangements, and the evolving relationship between public and private forms of money.

According to the IMF, achieving the right balance between innovation and financial stability will require regulatory frameworks that preserve essential public goods while enabling technological advancement.

The fund concluded that the most effective outcome would be a tokenised financial system that maintains access to risk-free settlement assets, promotes internationally aligned regulatory oversight, and supports interoperability across platforms and jurisdictions.