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BIS Boss Coins 'Finternet' Term, Touts Tokenization as Tool for Solving Today's Financial System Shortcomings

source-logo  news.bitcoin.com 17 April 2024 03:35, UTC

BIS Head Agustin Carstens and Infosys co-founder Nandan Nilekani have proposed the idea of the “Finternet,” an interconnected financial system led by tokenized assets that would help to overcome today’s shortcomings in transacting financial assets. The core of this system would rely on the possibility of smart contracts managing these assets programmatically.

BIS Boss Highlights Advantages of Token-Based ‘Finternet’

In a recently issued paper, Agustin Carstens, General Manager of the Bank for International Settlements (BIS), and Nandan Nilekani, co-founder of India-based Infosys, have coined the term “Finternet,” an interconnected financial system. Finternet refers to a series of linked systems that seek to integrate many financial functions in one network, lowering the entrance bar for participants.

The paper defines Finternet as “multiple financial ecosystems interconnected with each other, much like the internet, designed to empower individuals and businesses by placing them at the centre of their financial lives.”

At the center of the Finternet is tokenization, a technology that allows for representing real-world assets (RWA) and financial assets in a single system managed by smart contracts, enabling operations and transactions otherwise impossible with today’s tech.

Tokenization “fundamentally reshapes the process of financial transactions,” the paper states, as tokens include “value and regulatory information that would typically be recorded in databases.”

Finternet harnesses the concept of BIS Unified Ledger, an all-encompassing system that includes wholesale tokenized central bank money, tokenized commercial bank deposits, and other tokenized assets. The programmability of this platform is what would accelerate and enable these transactions. Users would connect to applications harnessing these concepts without having to manage these concepts, greatly simplifying access to financial instruments.

Compliance would be built on top of these systems, and existing regulations would have to apply to these to minimize the creation of specific law frameworks to deal with these. The paper states that this would be more relevant in emerging markets, where the capacity for developing these frameworks may be limited.

Carstens had referred to tokenization as an enabling technology before, explaining that the real challenge would be to work out the legal and regulatory frameworks for these networks to operate compliantly.