8Deposit Tokens
New ledger technology developed in the crypto world could allow tokenised bank deposits to circulate freely as ‘tokenised deposit money’, in what might be thought of as a digital banknote issued by a private bank. They would constitute claims on the issuing bank that could be held, for example in a wallet, without the holder having to have an account at the issuing bank.
—Sir Jon Cunliffe, Deputy Governor, Financial Stability, Bank of England1
After discussing stablecoins, CBDCs, and tokenized assets, it's time to delve into deposit tokens, which could potentially revolutionize the banking industry by incorporating DLT technology into banking processes.
Deposit tokens are a way for commercial banks to implement DLT into their core business, offering the benefits of this technology.
8.1 What Are Deposit Tokens?
Deposit tokens are transferable tokens issued on a blockchain by a licensed depository institution, representing a deposit claim against the issuer.2 At this point, deposit tokens are a very novel type of money that is currently being piloted by individual banks, consortia, and other private sector companies. Nonetheless, given the advantages of DLT and the importance of commercial banks in finance, this could well become a very significant trend.
But first, a point on terminology. The Global Financial Markets Association (GFMA) makes a distinction between the similar sounding “tokenized securities” and “security tokens.” The former refers to a digital ...
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