BOK’s Shin Says Tokenization Era Is Coming for Bank Deposits, Government Bonds

Blueprint Unveiled at ECB Forum

Tokenization to Automate Settlement and Collateral Management

The Bank of Korea said the era of issuing and trading not only commercial bank deposits but also government bonds as blockchain-based tokens is approaching. Governor Hyun Song Shin laid out a blueprint for tokenizing financial assets such as government bonds to automate bond settlement and collateral management.

Shin presented a paper titled “Realizing the Unified Ledger: Lessons From Project Hangang” at the European Central Bank Forum on Central Banking in Sintra, Portugal, on July 1. Project Hangang is a real-world example of building a unified ledger that allows central bank money, bank deposits and assets to be traded on a single platform.

Shin defined tokenized money as “smart money” that goes beyond acting as a store of value and means of transfer by embedding transaction conditions and execution rules. Because transactions can be designed to proceed only when preset conditions are met, the system can improve stability and efficiency over conventional financial transactions. Through Project Hangang, South Korea confirmed two years ahead of Europe that a unified ledger system can operate stably in a live environment.

Shin said the BOK is considering issuing government bonds directly on a unified ledger. If the bonds are issued in token form, transfer of ownership and payment could be processed simultaneously. Under the current system, settlement is completed on the next business day after a trade. Collateral management could also be automated. Tokenizing government bond issuance would also support monetary policy and financial stability, which are core central bank mandates, he added.

Shin also outlined plans to streamline foreign exchange and securities trading by linking the digital currency system with Project Agora, a cross-border real-time payment and settlement system being developed jointly by the central banks of eight major economies. At present, it takes two business days for a foreign investor to wire dollars, convert the funds and buy South Korean stocks. Linking Agora with the digital currency system so that foreign exchange and securities settlement can be handled in a single transaction would lower costs and broaden the won’s international use, he said.

Shim Seong-mi, Korea Economic Daily reporter smshim@hankyung.com