IMF and Bank of Korea present tokenization report, warn of new financial vulnerabilities

The Bank of Korea and the International Monetary Fund (IMF) held a joint event on October 8 at the Bank of Korea annex in Jung-gu, Seoul, to present "The expansion of tokenization: new efficiencies and vulnerabilities", a chapter of the IMF Global Financial Stability Report (GFSR). Seoul Economic Daily described it as chapter 3 of the October GFSR and said the IMF is releasing key chapters ahead of the IMF-World Bank annual meetings in Bangkok from the 12th. Asia Economy reported that this is the first time the GFSR, which is published every April and October, has included tokenization. [ 1 , 3 , 4 ]

According to the report, the tokenized real-world asset market grew to about $65 billion as of July. Seoul Economic Daily reported that fixed-income assets such as bonds, asset-backed securities and money market funds made up $48 billion of that and equities $2.3 billion, while tokenized repo transactions reached $371 billion on a 30-day moving average. Yonhap reported that the IMF said the market is concentrated in the United States and that a high share of issuers do not disclose their location, which may allow regulatory arbitrage or reduce transparency. [ 3 , 4 ]

The IMF found benefits and risks in tokenized markets. Seoul Economic Daily reported that in the United States more than half of tokenized equity volume traded outside regular hours and about 80% were fractional trades below one share, but realised volatility was about 1.5 times that of traditional markets. Newsis quoted the IMF as saying small market size left liquidity lower and volatility and fragmentation higher than in traditional stock markets. Asia Economy reported that tokenized bonds cut issuance costs and narrowed bid-ask spreads compared with conventional bonds. The IMF said tokenization could open new channels that amplify liquidity, leverage and interconnectedness risks, and Seoul Economic Daily reported that it rated the current risk to the overall financial system as limited. [ 1 , 2 , 3 , 4 ]

The IMF said four key constraints must be eased for tokenized asset markets to grow: legal certainty, regulatory clarity, interoperability and available settlement assets. It called for rules covering the full life cycle of tokens and cross-border rules, applying existing sector regulation by token type to prevent regulatory arbitrage, and common settlement standards between platforms. Seoul Economic Daily reported that the IMF set central bank money as the principle for securities settlement, warning that private deposit tokens or stablecoins could add contagion and concentration risk. [ 1 , 2 , 3 , 4 ]

Kwon Min-su (권민수) of the Bank of Korea said in his opening remarks that Korea announced a roadmap for token securities issuance last month and plans to begin phase two of Project Hangang in the fourth quarter of this year. He said that as tokenization spreads, after-the-fact responses may become harder, so a preemptive framework should be considered. Asia Economy reported that participants also included Athanasios Vamvakidis (아타나시오스 밤바키디스) of the IMF Monetary and Capital Markets Department, Emily Kwak (에밀리 곽) of BlackRock, Besho Masaki (베쇼 마사키) of the Bank of Japan and Yoon Sung-kwan (윤성관), head of the Bank of Korea digital currency office. [ 1 , 2 , 3 ]