Bank of Korea Deputy Governor Kwon Min-soo emphasized the need for appropriate proactive measures as the speed of transactions and payments increases with the expansion of tokenized financial assets.
During his opening remarks at the International Monetary Fund (IMF) launch event for the Global Financial Stability Report (GFSR) titled "The Expansion of Tokenization: New Efficiencies and Vulnerabilities" on October 8, Kwon stated, "To fully realize the potential benefits of tokenization, it is essential to examine the new efficiencies and vulnerabilities in a balanced manner."
Tokenization refers to the technology that utilizes distributed ledger technology to represent financial assets and transaction information in the form of digital tokens. It is characterized by the ability to process multiple stages, such as trading, clearing, and settlement, simultaneously by embedding transaction conditions and execution rules within the ledger.
Kwon noted, "Tokenization using distributed ledger technology is a continuation of the trend to reduce costs and friction associated with financial transactions," adding, "We are at a turning point where financial infrastructure can take a significant leap forward."
In fact, tokenized financial assets are rapidly spreading, particularly in the U.S. and European capital markets. In Asia, there is a growing number of real-world cases utilizing tokenized deposits as a means of payment.
In South Korea, related projects are also gaining momentum. Kwon mentioned, "Last month, Korea announced a roadmap for the issuance of token securities, and we plan to officially start the second phase of Project Han River in the fourth quarter of this year," adding, "Next year, the Bank of Korea and the government will collaborate on a pilot project for the tokenization of government bonds."
He highlighted that as tokenization expands, it is crucial to consider its implications for the stability of the financial system. He particularly stressed that Asian countries, which have experienced rapid capital outflows in the past, must closely examine the potential side effects of tokenization.
Kwon remarked, "As Asia is at the center of the global supply chain, if the speed of financial transaction settlements increases and intermediary costs decrease, significant benefits are expected for both the real economy and financial markets," while also noting, "At the same time, Asia has also experienced rapid capital outflows in the past."
He continued, "The limited trading hours of existing infrastructure, multiple intermediaries, and settlement processes that can take several days reduce efficiency during normal times, but they also serve as a buffer that allows policymakers to assess and respond to situations during market instability. As tokenization spreads, it may become more challenging to respond reactively, so it is necessary to consider establishing appropriate proactive response systems."
Kwon also likened the changes in the financial system due to tokenization to a Formula One (F1) car race, stating that not only a fast engine is needed but also a sturdy chassis, tires with good grip, and brakes that can slow down at the right time.
He concluded, "The same applies to tokenization; it is important to have soundness and safety mechanisms that can handle the speed, as well as a policy framework that can operate timely when necessary, just as it is essential to create a faster and more efficient financial infrastructure."
* This article has been translated by AI.
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