Tokenisation: The new buzzword in finance

Technology and digitalisation are enabling this new transformation. But if we look at financial history, it resembles old wine in a new bottle

- AMOL AGRAWAL

FRENCH WRITER JEAN-BAPTISTE Alphonse Karr in 1849 wrote that “the more things change, the more they remain the same”.

In a way, he summed up much of human history—we think we have progressed, yet the core foundations remain the same. We are witnessing a similar change in the financial system with tokenisation; yet at its core, nothing changes.

The International Monetary Fund’s (IMF) magazine Finance and Development (F&D) is based on the theme of tokenisation of finance. It has also released a dictionary to simplify terms in this new world of finance, and it defines finance token as a “unique digital representation of ownership of a financial (money or bonds) or real asset (commodities) that exists on a distributed ledger”. To simplify, tokens are plastic coins we get in amusement parks. In an amusement park, you exchange cash for a token and then take multiple rides across the park. On your return, you return the token and take back any remaining amount as cash. Tokenisation simplifies the economics of a theme park, where one does not have to deal with multiple counters and exchanges. In fact, the coins and banknotes are also like tokens used to settle transactions. Similar ideas apply to finance as well.