Is tokenization a game-changer for the International Monetary System

The international monetary system (IMS) is characterized by very strong inertia. A change in the IMS is a rare event. More than 50 years after the Bretton-Woods agreement was abandoned (in 1973), and despite the multipolarization of the global economy, the IMS today is still organized mostly around the US dollar.

The tokenization of finance consists in issuing, exchanging and storing digital, programmable representations of financial assets, real assets or bank deposits on distributed ledgers. It is, inter alia, revolutionizing the cross-border payments industry by offering a cheaper alternative to the traditional system of correspondent banking. The question then is whether tokenization will be a shock large enough to bring about a structural change in the IMS, or whether it will just benefit the incumbent currency - the US dollar - cementing the IMS for another 50 years.

Opposing forces driving the International Monetary System

Tokenization is affecting the IMS through two opposing forces (Chart 1).

Cementing the international role of the US dollar

On one hand, the rapid development of tokenization is mostly driven by the US financial market, in US dollars. Within this new industry, USD-linked stablecoins can be viewed as "proxies" of the US dollar. A parallel can be made with the development of "eurodollars" - dollar deposits in banks outside the United States, mainly in London - in the mid-1950s (Schenk, 1998).

Stablecoins are digital tokens issued by financial intermediaries against eligible liquid reserve assets and promising a fixed peg against a fiat currency (or a basket of fiat currencies). As of August 2025, dollar stablecoins represented 99% of the market, with two issuers (Tether and Circle) accounting for 90% of the total (Source: Sentora Research). The GENIUS Act (Guiding and Establishing National Innovation for US Stablecoins), enacted in July 2025, establishes a unified, legal framework for the issuance of stablecoins, and a list of eligible reserve assets. In August 2025, the market valuation of stablecoins was USD 256 billion globally, of which over 60% was backed by US Treasuries. Hence the indirect demand for Treasuries (to back stablecoins) was at least USD 150 billion. Interestingly, there were virtually no stablecoins in 2020. In five years, then, the indirect demand due to the expansion of stablecoins has amounted to about USD 150 billion.

It is interesting to compare this figure with the slow decline of the US dollar in official reserves around the world: between 2020 Q1 and 2025 Q1, the share of the US dollar in allocated official reserves declined by 4.1 percentage points, or USD 50 billion, according to IMF COFER data. The expansion of stablecoins is equivalent to around three times the retreat of the US dollar in official reserves between 2020 and 2025.

This new source of demand for US federal debt has been well understood by the Trump administration. In 2025, one of the first executive orders of the new administration aimed "to promote the development and growth of lawful and legitimate dollar-backed stablecoins worldwide" (President Trump's Executive Order on digital assets, January 2025). The strategy aims to expand the dollar's role as a medium of exchange and potentially as a store of value, even though stablecoins bear no interest. The shortening of US government bond maturities at issuance is consistent with this strategy, as stablecoins need to be backed by short-term, liquid assets.

Money market funds (MMFs) can be viewed as close substitutes for stablecoins, as they too offer liquid savings products which are largely backed by Treasuries. The main difference is that MMFs offer a return to their holders, but redemption in fiat currency is attached to the subscriber, whereas in the case of stablecoins, Mary can claim redemption of the stablecoins that Peter gave her. Unlike MMFs, stablecoins are bearer assets.

As of mid-2025, stablecoins do not yet seem to have cannibalized MMFs in the United States: from 2020 Q1 to 2025 Q1, MMFs' total assets increased by a whopping USD 2,671 billion (Source: Federal Reserve through Fred). All of this increase, however, took place after interest rates started to rise, in 2022.

As long as interest rates are significantly positive but stablecoins remain unremunerated, MMFs dominate stablecoins as a store of value, whereas stablecoins dominate MMFs as a medium of exchange. However, stablecoins may be indirectly remunerated on the secondary market, while MMFs could also be tokenized. Hence the distinction between stablecoins and MMFs could be eroded over time.

USD-linked stablecoins also resonate with the rising dominance of the US financial industry worldwide. According to O'Kelly et al. (2024), the relative revenue shares of the four largest US wholesale banks versus the six largest European ones, for market activities, was 59/41% in 2012, estimated to be rising to 68/32% in 2025. US financial intermediaries have an incentive to offer tokenized deposits and stablecoins to their customers in order to keep up with innovation, retain their customers, reap the profit related to unremunerated deposits and stablecoins and, finally, internalize the risk of a flight of deposits into stablecoins. A strong US financial industry will reinforce the expansion of USD-linked stablecoins, and in turn, US-linked stablecoins will help US financial intermediaries to grow overseas.

Chart 1. Two opposing forces affecting the international monetary system

A new opportunity for a multipolar IMS

The mismatch between a multipolar global economy and an IMS still very much dominated by the US dollar is striking (see, e.g., IMF, 2025). The inertia of the IMS is shaped by economies of scale and network externalities: the more a currency is used, the cheaper and more convenient it is to use it (Portes and Rey, 1998). The complementarity between the three functions of the international currency also contributes to inertia: the dollar is dominant as a store of value because it is also dominant as a medium of exchange and as a unit of account; in turn, the dollar is dominant as a medium of exchange because it is also dominant for the other two functions, etc. (Krugman, 1984).

However, several fundamental factors do matter, notably size, liquidity, stability, rule of law and geopolitical power (Bénassy-Quéré, 2015). The lasting dominance of the US dollar can be explained by its generous supply of liquid, safe assets, coupled with productivity growth, capital openness and geopolitical alliances (Eichengreen, Mehl and Chitu, 2019). However, several international currencies may coexist, as shown by Eichengreen, Mehl and Chitu (2018). Hence, (i) the inertia of the dollar-centred IMS may not last forever - an exogenous shock may affect it, and (ii) the dollar may well remain a key currency even though other currencies emerge alongside it.

The unsustainability of US fiscal policy and weaponization of the currency by the US administration could weaken the intrinsic appeal of the US dollar. In this context, innovations in cross-border payments, by lowering the cost of such payments, may provide the type of shock that could move the IMS towards multipolarity: if the risks and costs of payments between any pair of currencies fall significantly, there will be less need for using the US dollar as a vehicle currency, i.e. as an intermediate currency k when exchanging currency i for currency j. Brunnermeier, James and Landau (2019) even argue that lower switching costs could promote several currencies for the medium of exchange function, independently from their intrinsic appeal as stores of value. This could give birth to "digital currency areas (DCAs)" - distinct ecosystems where various economic and financial services would be exchanged via a specific, digital means of payment. Despite strong network externalities, several DCAs could coexist due to national regulations, e.g. on data protection.

Cost-saving innovations in cross-border payments extend beyond stablecoins. They notably include:

- The interlinking of fast payment systems, either bilaterally or through a common platform (e.g. Project Nexus launched by the BIS innovation hub - BISIH);
- Using the blockchain to generate and transmit compliance proofs in order to compress compliance costs (Project Mandala project of the BISIH);
- The introduction of wholesale and retail central bank digital currencies (CBDCs), and the development of automated market makers for the trading and settlement of wholesale CBDCs on a decentralized ledger (Project Mariana of the BISIH);
- The development of shared ledgers to connect tokenised commercial bank monies and central bank digital currencies for the settlement of cross-border payments (the BISIH's project Agora).

The US strategy of expanding USD-linked stablecoins is not without fragilities. Stablecoins offer promises backed by liquid assets, but they do not guarantee one-for-one exchange for central-bank dollars. Like for a currency board, and despite the regulation, the risk of de-pegging remains. In the words of Brunnermeier et al. (2019), dollar stablecoins are "independent currencies" as the peg may be broken eventually (whereas the peg of deposit account money is backed by the central bank). Then, for instance, invoicing exports in US dollars and receiving international payments in stablecoins entails a currency risk that could weaken the role of the dollar as a unit of account and/or as a medium of exchange.

Same technology shock, opposite implications?

In short, technological innovation in cross-border payments could have opposite implications for the IMS (Chart 2):

- It could reinforce the role of the US dollar as an international medium of exchange through its stablecoin "proxies"; such an expansion would in turn lock in international demand for US Treasuries, and hence the role of the US dollar as a store of value; or
- It could offer third countries an opportunity to develop exchanges in other official currencies, or in stablecoins backed by other currencies, which would weaken the role of the US dollar as a medium of exchange, and possibly also as a store of value and unit of account.

So far, stablecoins have clearly favoured the former scenario. However, central bank initiatives in various parts of the world could challenge the dollar in the coming years, at least for some functions (see Amsellem et al., 2025).

Chart 2. Two opposite scenarios for the IMS

Multipolar vs fragmented IMS

A multipolar IMS, characterized by interconnected regional currency blocks, could offer several benefits:

• Regional currency areas linked with flexible exchange rates would enhance the shock-absorption capacity of the IMS. For instance, a negative shock to world demand for US goods and services could be more easily absorbed by a depreciation of the dollar if fewer currencies were pegged de jure or de facto to the dollar (Bénassy and Forouheshfar, 2015), or if "dominant currency pricing" - in practice, invoicing of exports in US dollars - was less widespread (Gopinath et al., 2020).
  
• A multiple currency system would alleviate the risk of a "new Triffin dilemma" whereby international markets fail to discipline the US government due to the lack of an alternative store of value (Gourinchas et al., 2011; Eichengreen, 2011; Farhi and Maggiori, 2017).

Of course, the substitutability across several key currencies would also involve some exchange-rate instability due to portfolio preference shocks, the most obvious challenge being the transition period, since supply and demand for the different currencies may not evolve at the same speed.

A fully-fledged multipolar IMS continues to be a remote prospect, especially given that (i) China still displays a combination of limited international capital mobility and a current-account surplus, and (ii) the euro area does not offer large volumes of unified "safe assets". However, a slow but steady diversification of official reserves is already visible, to the benefit of the renminbi, the Canadian dollar, the Australian dollar and other currencies (Chart 3).

Chart 3. Breakdown of official FX reserves by currency (% of allocated reserves)

The risk of monetary fragmentation

The multipolarization of the IMS should not be confused with its fragmentation. Consider the extreme case where the IMS breaks down into three currency blocks that are not financially interconnected. Then, a negative shock to world demand for US goods and services would have to be met with lower US imports, the latter being invoiced in foreign currencies with high transaction costs: the absorption capacity of the IMS would be weakened rather than enhanced.

The lack of interoperability between several currency blocks could also fragment international liquidity and threaten the singleness of each currency. In practice, the price of one US dollar could differ in New York, Frankfurt or Beijing.

The fragmentation of the IMS could materialize not only across regional blocks, but also between different private ecosystems: "Stablecoin holdings are tagged with the name of the issuer, much like private banknotes circulating in the 19th century Free Banking era in the United States. As such, stablecoins often trade at varying exchange rates, undermining singleness" (BIS, 2025, p. 79).

The Role of Central Banks

The two-tier banking system, where the central bank is the "bank of the banks", is designed to ensure the "singleness" of money at both wholesale and retail levels, the elasticity of liquidity provision, and the integrity of the system against fraud, financial crime or other illicit activities (see BIS, 2025).

Central banks need to accompany financial innovation rather than oppose it. To avoid the risk of monetary fragmentation, they can provide a tokenized settlement asset for the wholesale market, and a retail central bank digital currency for the public. In so doing, they will ensure that commercial money and central bank money continue to be exchanged at par, with "no question asked".

The Eurosystem is following such strategy:

- At wholesale level: by the end of 2026 Q3, a pilot solution will allow financial intermediaries to settle their tokenized assets in central bank money, either through Target services or through a Eurosystem distributed ledger; this "Pontes project" will then be further enhanced as part of Target services. In the longer run, the Eurosystem intends to offer a shared ledger where tokenized central bank money, tokenized bank deposits and tokenized assets could be exchanged on the same platform ("Appia project", see ECB, 2025).

- At retail level: by the end of 2025, the decision to issue a digital euro should be taken by the Eurosystem, after the appropriate legislation has been approved by the European Council and Parliament. Like banknotes and coins, the digital euro will complement private payment solutions. The launch of the digital euro is expected by the end of the decade.

- At international level: the Eurosystem is actively engaged in interlinking its fast payment system (TARGET Instant Payment Settlement - TIPS) with foreign systems (see Cipollone, 2025).

In parallel, the European regulation on stablecoins, MiCAR (Markets in Crypto-Assets Regulation) allows financial institutions to issue stablecoins linked to the euro, backed by liquid assets and bank deposits. Rather than a substitute for the above initiatives, euro-linked stablecoins should be viewed as a complement, for specific use cases.

The current two-tier monetary system remains a relevant construction to ensure the financing of the economy and the soundness of financial markets. In this setup, central bank money is the anchor of the financial system, ensuring its stability and transmitting monetary policy. While tokenised commercial money could play a role as a settlement asset, only tokenised central bank money can offer such an anchor.

Conclusion

It is commonplace to conclude that the IMS is at a crossroads, with tokenization and stablecoins poised to disrupt the status quo… or not. While the rise of USD-backed stablecoins is reinforcing the dominance of the US dollar, the emergence of alternative mediums of exchange could challenge this dominance in the long run. Whatever the case, central banks have a crucial role to play in accompanying financial innovation, ensuring financial stability and maintaining the capacity of domestic banks to finance the economy and transmit monetary-policy impulses.

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