Digital money: The token is not enough

Why bank-grade settlement is the missing layer in tokenized finance

In the first part of this series, Digital money: Not all tokens are created equal, I wrote about why stablecoins, tokenized deposits and central bank digital currencies (CBDCs) shouldn’t be treated as interchangeable forms of digital money.

Stablecoins have demonstrated demand for always-on value transfer, while tokenized deposits give banks a way to make commercial bank money programmable without giving up the deposit model. CBDCs, meanwhile, could provide a digital form of central bank money for settlement.

But making money programmable within one institution is only part of the challenge. The harder question is what happens when that money needs to move between institutions and how the transaction is ultimately settled.

This is where tokenization meets settlement.

Tokenized deposits: Useful, but limited

Tokenized deposits allow banks to introduce programmability while retaining the underlying deposit relationship. But their limitation becomes clear when money needs to move beyond the issuing bank. Bank A's tokenized deposit isn’t automatically Bank B's money.

Across banks, the receiving institution requires settlement before it can safely credit its customer. This is why tokenized deposits without tokenized settlement are useful but incomplete. They can digitize and program a bank’s own deposit ledger. However, they don’t, alone, solve the interbank settlement problem.

The missing layer: Tokenized settlement

Across banks, the neutral settlement asset is central bank money. In a tokenized financial system, that may mean tokenized reserves or wholesale CBDCs. The customer-money leg may be a tokenized deposit; the settlement leg should be central bank money.

Common transaction legs and their purpose

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This layered model matters because the financial system doesn’t simply need tokens that can move. It needs debit, settlement and credit to complete together.

Initiatives such as Project Agorá from the Bank for International Settlements Innovation Hub are important because they explore this combination of tokenized commercial bank deposits with tokenized wholesale central bank money on shared programmable infrastructure.

The significance isn’t simply tokenization. It’s the coordination between commercial bank money and settlement money.

The token mint/burn problem is really a synchronization problem

Tokenized finance discussions often focus on mechanisms such as token minting and burning. The expensive and risky part, however, isn’t the computational act itself. The harder problem is synchronization. The system must ensure that debit + settlement + credit complete together.

Those movements must also reconcile with bank books, pass through the required controls and achieve legal finality. If one leg completes while another fails, the bank can be left with an operational, liquidity or legal problem.

Tokenization, therefore, doesn’t remove the need for trusted infrastructure. It changes where trust sits.

• Banks control bank money.
• Central banks control settlement money.
• A governed platform coordinates the transaction.

What this means for banks: Assessing the impact of digital currency

Digital money touches the entire banking model, not just payments. Banks need to understand how each form of digital money affects funding, liquidity, settlement, risk, controls and the customer experience.

The enterprise-wide impact of digital money

^{This table highlights how digital money could impact different areas of the bank.}

This breadth is important. A digital-money initiative may begin as an innovation or payments program, but production deployment quickly becomes an enterprise banking issue.

Making digital money work: What to look for in a partner

A partner with both payments and technology expertise can help banks maximize the value of digital money in terms of usability, compliance, integration, resilience, auditability and business-need alignment. Look for these attributes in a partner:

• Strategy and readiness: Expertise in use case selection, regulatory impact, business case development and road mapping.
• Target operating model: Strong capabilities in the areas of onboarding, wallet controls, redemption, exception management and crisis playbooks.
• Architecture and integration: Solutions in core banking, payments, custody, token ledgers, APIs, ERP/TMS and data platforms.
• Risk and controls: Deep experience with anti-money laundering, sanctions, depeg monitoring, reconciliation, cyber resilience and legal finality controls.
• Data and reporting: Support for single liquidity views, legal classification, valuation, audit trail and regulatory reporting.
• Managed services: End-to-end monitoring, reconciliation support, incident response and operational resilience.

The market doesn’t need more proof that tokens can move. It needs proof that tokenized money can be governed, reconciled, audited, secured and integrated into banking infrastructure.

A pragmatic digital money roadmap for bank clients

Banks don’t need to solve the entire future-of-money architecture at once. However, they do need a clear view of where they stand and which capabilities should be built now.

Building a future-of-money architecture

^{This table lays out steps to take in building a future-of-money environment.}

This gives banks a practical way to make progress without trying to solve the entire future of monetary architecture in a single program.

From tokenization to trusted settlement

Stablecoins have shown the demand for always-on programmable money. Tokenized deposits show that banks can respond without giving up the deposit model. CBDCs and tokenized reserves suggest a settlement anchor that may be needed for digital money to scale safely across institutions. The future of money isn’t just tokenized. It must be settled, governed and trusted.

If you'd like to discuss how your organization can prepare for the next phase of digital money—from  tokenized settlement and interoperability to the operational capabilities required to support it—reach out to me for a conversation.