Why Central Banks Should Participate and Not Compete in Tokenized Markets.

Source: Dev.to

Introduction

Tokenization has long been viewed by central banks as a distant experiment—an interesting development in the “crypto world” but not a real concern for regulated finance. That assumption is no longer true. Government bonds, money‑market funds, treasuries, private credit, commercial paper, and institutional settlement flows are being tokenized at a rapid pace. What began as a niche technology is quickly becoming a core component of global markets.

A common mistake is to see tokenization as a threat—a separate system that makes it harder to control money or policy channels. In reality, the growing tokenized markets are not the danger; the real issue is central banks’ absence from the design process.

Tokenization Enhances Monetary Sovereignty

• Tokenization strengthens monetary sovereignty rather than diminishing it.
• Resisting tokenization risks losing three key benefits: efficiency, visibility, and relevance.

Industry Adoption

• BlackRock’s BUIDL tokenized treasury fund is now one of the largest on‑chain funds.
• JPMorgan’s Onyx platform creates tokenized collateral networks for instant settlement.
• HSBC offers tokenized gold products and digital custody for institutions.
• Asset managers such as Franklin Templeton, WisdomTree, and Wellington are launching daily‑liquid tokenized money‑market funds.

These developments are rebuilding the world’s financial plumbing in real time.

Data Supporting the Shift

• Tokenized real‑world assets (RWAs) have surpassed $20 billion in circulation.
• Citi estimates tokenized markets could reach $4–5 trillion by 2030.
• BCG projects $16 trillion in tokenized assets over the long term.
• The BIS, IMF, MAS, FCA, and ESMA now classify tokenization as market‑infrastructure innovation, not “crypto activity.”

Risks of Exclusion

Liquidity Fragmentation

Central banks that try to compete with separate, non‑tokenized systems cause liquidity to split. Institutions gravitate toward the venue with the deepest liquidity—whether on public chains or private networks—rather than using isolated central‑bank platforms.

Limited Adoption

Central‑bank‑designed systems often suffer from limited adoption because they provide fewer incentives for institutional participation.

Transparency Deficit

By refusing to integrate with tokenized markets, central banks lose visibility into the capital flows shaping modern finance, creating a transparency deficit at the policy level.

Sovereignty Threat

Exclusion, not tokenization itself, threatens monetary sovereignty. Millions of users transfer digital dollars across blockchains daily, and in many emerging economies, USD stablecoins act as “shadow digital dollars,” serving both as a store of value and a settlement medium. Ignoring these flows only strengthens their influence.

Benefits of Participation

• Visibility: Direct monitoring of tokenized USD assets and capital movements.
• Interoperability: Maintaining FX liquidity, managing cross‑border capital, and monitoring flows require participation in existing digital channels.
• Relevance: A currency that cannot integrate into tokenized ecosystems risks becoming irrelevant.

Tokenized treasuries now offer parallel money rails with higher yields, instant settlement, and no middlemen, attracting users away from domestic currencies if those currencies are not part of the tokenized landscape.

Regional Example: Africa

• Digital‑First Clearing: Build a clearing infrastructure that tokenizes land records, carbon credits, and agricultural goods.
• Open Issuance Markets: Enable small businesses to access capital through on‑chain government instruments.
• Attract External Capital: Draw investment from diaspora and global investors into tokenized African assets.
• Reduce Dependence on Dollar Stablecoins: Develop trustworthy domestic tokenized assets to lessen reliance on external stablecoins.

By adopting tokenized infrastructure now, Africa can leapfrog legacy systems and create a modern market framework without the constraints of outdated processes.

Conclusion

Participation in tokenized markets is no longer optional for central banks. Engaging with the evolving digital infrastructure preserves monetary sovereignty, ensures policy visibility, and keeps national currencies relevant in a rapidly tokenizing global financial system.