This collaboration aims to leverage tokenization technology to streamline financial processes and enhance global economic development, Reuters reported Tuesday (Nov. 28).
Tokenization involves converting traditional financial assets into unique digital tokens, enabling faster and more efficient transactions, according to the report. The partnership also includes Switzerland’s central bank, which has been at the forefront of tokenization initiatives.
The initial focus of the IMF, World Bank, BIS and Switzerland’s central bank collaboration is to simplify paper-based processes involved in supporting poorer regions of the world, the report said.
Specifically, the partnership aims to tokenize the “promissory notes” used when richer countries donate to the World Bank’s funds, per the report. By digitizing these notes, the transfer of funds can be expedited, ensuring that development money reaches emerging and developing economies in a more timely manner.
Tokenization also presents an opportunity to encode policy and regulatory requirements into a common protocol, according to the report. By embedding these rules into the tokenization process, the collaboration aims to address challenges such as international money laundering.
The collaboration also touches upon the emergence of central bank digital currencies (CBDCs), the report said. As CBDCs gain traction worldwide, there is a growing need for global standards and technology compatibility to ensure seamless interoperability with existing payment systems.
It was reported in October that the BIS, central banks and traditional financial institutions are in the midst of tackling various ways and means of creating and using tokenized bank deposits.
For example, the BIS is working with central banks to launch Project Mandala, which “seeks to ease the policy and regulatory compliance burden by automating compliance procedures” and would do so for both CBDCs and tokenized deposits, PYMNTS reported at the time.
In addition, the Bank of Korea is conducting a pilot in partnership with the BIS and other banks to test the feasibility of a wholesale CBDC used in the settlement of commercial bank tokenized deposits, and the programmability of those deposits.