Tokenization could amplify market risks, IMF says

The global push to put traditional finance on the blockchain just got a flashing warning light, from none other than the International Monetary Fund.

What’s happening? Big players like the New York Stock Exchange are already testing infrastructure to trade tokenized stocks and exchange-traded funds around the clock. Nasdaq is pushing the US SEC to allow tokenized stock trading, and SEC Chair Paul Atkins appears supportive.

BUT- A new IMF report (pdf) warns that this isn't just a marginal tech upgrade. “Tokenization constitutes a structural reallocation of trust within the financial system,” the author argues.

Why it matters

The big selling point of tokenization is instant, constant settlement — what the industry calls “atomic settlement.”

The problem? The traditional financial system relies on delays. The lag time gives institutions a chance to net their claims and gives central banks a window to step in before a market hiccup turns into a full-blown meltdown. If trades settle instantly by design, we lose that temporal buffer.

This rewiring of market infrastructure creates several major systemic headaches:

• Liquidity strains: Because end-of-day netting is eliminated, institutions must maintain liquidity continuously, sharply increasing intraday liquidity needs.
• Algorithmic fire sales: As the IMF notes, “automated margin calls triggered by price movements can force rapid asset sales, reinforcing procyclical dynamics.”
• Outdated backstops: Central bank emergency lending facilities currently operate on standard business hours and are insufficient in a 24/7 tokenized environment.
• Private money risks: Privately issued stablecoins are increasingly used to settle these digital trades. However, the IMF warns that today's stablecoins resemble money market funds and “could be vulnerable to confidence-driven runs in adverse conditions.”

For emerging and developing economies in the region, this structural shift is especially risky. Frictionless digital finance could lead to wild swings in capital flows and the erosion of monetary sovereignty. Money could flood out of a developing economy during a panic before policymakers can react. The report explicitly warns that this continuous settlement could accelerate outflows during stress episodes, “limiting the effectiveness of traditional capital flow management measures.”

What comes next

The IMF is telling global regulators they need to adapt their crisis playbooks immediately. To avoid a fragmented market or a system dominated by private stablecoins prone to bank runs, governments need to provide the underlying digital cash.

That likely means a faster rollout of wholesale central bank digital currencies (wCBDCs), to anchor the system in safe public money.

“Tokenization does not diminish the role of the public sector, but it reshapes it,” the report said, warning that “the window for shaping the architecture of the tokenized financial system is open, but it will not remain so indefinitely.”

MARKETS THIS MORNING-

Asia-Pacific markets are up in early trading this morning, as investors seemingly brush off Trump’s latest threats to destroy Iranian power plants and bridges if it doesn’t open up the Strait of Hormuz. Japan’s Nikkei is up over 1.6% and South Korea’s Kospi is looking at gains of 2.2%. Despite the early rally, it’s anyone’s guess how the week will unfold with war developments and upcoming data releases potentially pushing markets in either direction.

THE CLOSING BELL-

The EGX30 rose 1.9% at yesterday’s close on turnover of EGP 6.1 bn (8.3% below the 90-day average). Local investors were the sole net sellers. The index is up 13.0% YTD.

In the green: Egypt Aluminum (+7.4%), Orascom Construction (+6.0%), and Telecom Egypt (+5.3%).

In the red: Heliopolis Housing (-1.2%), Abu Qir Fertilizers (-0.9%), and Valmore Holding -EGP (-0.8%).