IMF warns: Speeding up transactions through coding could threaten market stability

The International Monetary Fund warns that while tokenization technology offers speed and efficiency in executing transactions, the rapid expansion of the adoption of tokenized assets could pose potential risks that threaten the stability of the financial system.

In a recent report, the fund’s financial advisor Tobias Adrian explained that the technological improvements seen today may actually represent a fundamental shift in the architecture of financial architecture.

New technologies that rely on blockchain and smart contracts eliminate the so-called time lag in traditional transactions, as transactions are executed and settled almost instantly.

Although these disruptions are considered a source of slowness and cost, they play an important role as a safety mechanism as they provide financial institutions time to manage liquidity and reduce risk, and allow regulators to intervene if needed before transactions are finalized.

He pointed out Report Without a so-called protective pad, three main risks can arise.

The first is liquidity pressure, as institutions may be forced to continually have funds available to meet immediate settlement requirements.

The second is related to governance, as reliance on smart contracts reduces human intervention, which could exacerbate a crisis in the event of a technical error or sudden crash.

The third risk is the difficulty of cross-border supervision. Digital assets can flow freely between countries, which limits the effectiveness of regulatory agencies.

In return, the fund recognizes the advantages the technology offers, such as reduced costs, increased transparency and faster operations.

But he stressed that its success would rely on secure settlement tools, such as central bank digital currencies designated for institutions, to build public trust.

The warning comes amid rapid growth in the tokenized asset industry, which is currently estimated to be worth around $27.5 billion and is expected to reach trillions of dollars in the coming years.

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