Deposit Tokenisation: A Global Shift in Banking
The global financial landscape is witnessing a significant shift with the exploration of deposit tokenisation. This involves converting conventional bank deposits into programmable digital tokens on distributed ledger technology (DLT). Major banks and institutions worldwide, including Binance and Franklin Templeton, are testing this concept. Meanwhile, India's financial ecosystem is evolving, with households and corporates redirecting savings towards capital markets.
Deposit tokenisation, currently being tested by various banks and institutions, does not alter the fundamental nature of banking. Customers still deposit money with banks, which issue digital tokens backed 1:1 by fiat currency. This shift is a global response to pressures faced by banks struggling to retain low-cost deposits, which undermines their ability to support credit growth. Tokenised deposits can be used for payments, settlements, or collateral, and remain liabilities of regulated banks, subject to the same prudential norms as traditional deposits.
Tokenised deposits, combined with smart contracts, ensure both legs of a transaction settle simultaneously or not at all. This reduces counterparty and settlement risk. Unlike stablecoins or cryptocurrencies, deposit tokens are redeemable at par and regulated by the banking authority. India is well-positioned to explore deposit tokenisation through controlled pilots, aiming to retain liquidity, improve customer services, and enhance regulatory visibility. The Reserve Bank of India (RBI) acknowledges the potential of tokenised deposits to increase liquidity, reduce costs, and enable 24/7 accessibility.
Deposit tokenisation is a global trend that India is poised to explore. By converting traditional bank deposits into programmable digital tokens, this shift promises to increase liquidity, reduce costs, and enable 24/7 accessibility. With major institutions worldwide testing this concept, India's exploration of deposit tokenisation could transform its financial ecosystem.
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