Tokenized bank deposits are ordinary bank money recorded on a blockchain. How they work, and why banks are betting on them.
Most of the money in a modern economy is bank deposits, not cash or central bank money. A tokenized bank deposit is such a deposit recorded as a token on a blockchain or another shared digital ledger.
The money is still a claim on the bank, and in principle the same rules apply as for ordinary deposits. It is the form that changes, not what the money is.
A stablecoin is usually issued by a company that holds reserves behind each token. A tokenized deposit is issued by a bank and is part of the bank's normal balance sheet.
That means banks can keep lending the money out, as they do with ordinary deposits. For banks, this is an important reason to prefer tokenized deposits over stablecoins.
Tokenized deposits make it possible to move money around the clock and to settle trades in tokenized securities in the same operation as the trade itself. Payments can also be programmed, so they happen automatically when conditions are met.
They are primarily intended for payments and settlement between banks, companies and financial institutions.
When banks pay each other, settlement takes place in central bank money. That is why many expect tokenized deposits and wholesale central bank digital currency to work together.
Tokenized deposits do not rule out other forms of digital money. The same bank can tokenize its own deposits, join a partnership on a stablecoin and let customers use stablecoins from other issuers.
In the Nordics, where banks play a strong role in the payment system and work closely with the central banks, tokenized deposits have drawn particular attention.