The most significant development in digital money this year involves tokenized deposits, a new form of bank money represented on blockchains without leaving banks' custody. In July, SWIFT activated a ledger with 17 leading global banks to facilitate this instrument. JPMorgan now processes institutional payments using its own tokenized deposit platform, Kinexys. Meanwhile, a consortium including Bank of America and BNY Mellon aims to launch a shared network by 2027. The FDIC is also shaping regulation around these deposits, particularly regarding deposit insurance.

What Are Tokenized Deposits?

Tokenized deposits are digital claims on commercial banks recorded on blockchains or distributed ledgers, issued directly by the bank holding the deposit. Each token mimics a one-to-one relationship with traditional bank money on the bank's balance sheet, maintaining deposit insurance and regulatory oversight.

This contrasts with stablecoins, which generally move funds out of banks into reserve assets. Tokenized deposits keep the money inside banks, ensuring it remains available for lending and covered by insurance limits. This means tokenized deposits behave more like traditional account money when they are non-transferable tokens settling between banks.

Industry and Regulatory Progress

SWIFT's ledger and JPMorgan's Kinexys are live examples pushing tokenized deposits toward production status. The 17-bank shared ledger activated by SWIFT targets efficient cross-border payments using tokenized deposits. The 2027 network planned by American banking giants aims to expand institutional access to this model.

The FDIC's ongoing stablecoin regulatory efforts include provisions addressing deposit insurance applicability to tokenized deposits. A key technical distinction differentiates between non-transferable tokens, viewed as digital accounting entries, and transferable tokens, which resemble bank-issued stablecoins and face different regulatory treatment.

The outcome of this structural contest between stablecoins and tokenized deposits will influence bank funding dynamics, credit origination, and the fundamental nature of digital dollars on blockchains.

This material is informative and does not constitute financial advice.