IMF: Faster Tokenization Cuts Risk, Accelerates Shocks

The International Monetary Fund published a staff note arguing that tokenization could make the financial system faster. That speed could also make it more fragile, the IMF said.

The mechanism is straightforward. Moving assets and liabilities onto shared digital ledgers compresses execution, clearing and settlement into near-instantaneous steps. In normal markets, short settlement windows reduce counterparty risk. In a crisis, the same speed could accelerate the transmission of a shock before anyone has time to respond, the staff note said.

The IMF’s argument treats the trade-off as a policy design problem, not a technology problem. The ledger does not distinguish between a routine payment and a panic. If settlement-finality is measured in seconds, a bank run that used to take three days to drain a balance sheet could finish in the time it takes to update a database row.

The staff note distinguishes between assets that already trade at high velocity – repo, government bonds, foreign exchange – and slower instruments like real estate and private credit. Putting everything on the same infrastructure creates a single point of failure that propagates liquidity stress across asset classes previously insulated by slower settlement cycles.

Existing pilot programs have not solved the run-dynamics problem. The EU’s DLT Pilot Regime, Singapore’s Project Guardian and the Bank for International Settlements’ work on unified ledgers all aim to build the shared infrastructure the IMF describes. None have tested a full stress scenario on that infrastructure, the staff note said.