Tokenization is reinventing the bank deposit

The bank deposit, one of the most familiar forms of money, is undergoing an unusual technological experiment. Banks are testing ways to turn conventional deposits into digital tokens that can be transferred almost instantly, around the clock and, in some cases, programmed to move automatically when specified conditions are met.

The technology is beginning to move beyond the experimental phase. Swift, the global bank messaging network, said in July that 17 banks across six continents were preparing to pilot live transactions using tokenized deposits. Project Agorá, led by the Bank for International Settlements (BIS) and the Institute of International Finance, has brought together more than 40 regulated financial institutions and seven central banks to test similar technology for international payments.

The promise is a financial system in which conventional bank money moves faster and with fewer steps. But as deposits are also an important source of funding for bank lending, changing how easily that money can move could have consequences extending well beyond payments.

Turning a deposit into a token

A tokenized deposit does not create new money, but changes how an existing deposit is transferred.

Electronic payments can require financial institutions to maintain separate records and communicate before completing a transfer. Tokenization instead represents the deposit with a digital “token” tracked on a shared system. A July 2026 analysis from the Federal Reserve Bank of Dallas describes tokenized deposits as conventional claims on commercial banks transferred using blockchain technology, rather than as a separate currency.

Tokenization could also allow payments to respond automatically to predetermined conditions. Bank of England Governor Andrew Bailey described the concept in July as “money with instructions,” with payment released once goods are delivered or another contractual requirement is met.

Why banks want faster money

Some of the strongest arguments for tokenization concern international payments, where transactions can pass through several banks and payment systems before reaching their destination.

Project Agorá is examining whether commercial bank deposits and central bank money can operate together on a common platform for large transactions between banks and companies. These accounted for 91% of cross-border payment value in 2023, according to its May 2026 report.

A common system could bring together processes that currently happen separately, from sending payment instructions to completing settlement, while allowing transactions outside conventional banking hours. Companies could then automate supplier payments or manage cash across countries without waiting for several institutions to complete successive steps.

Tokenized deposits are not stablecoins

The push also represents banks' answer to another form of digital money that has expanded outside the traditional banking system: stablecoins. Both can represent conventional currencies in token form and move across blockchain-based systems, but economically they work differently.

A tokenized deposit remains a source of bank funding for mortgages, business loans and other investments, while stablecoin issuers generally hold safe, liquid assets against the coins they issue. 

A February 2026 staff report from the Federal Reserve Bank of New York examines how this revives an older debate over the relationship between money and credit. Requiring digital money to be fully backed by safe assets resembles 1930s proposals for “narrow banking,” separating institutions that provide money from those that create credit.

The New York Fed researchers modeled what happens when stablecoins and tokenized deposits compete. Their model found that stablecoins can efficiently turn safe assets into money but limit banks' ability to use those funds to finance credit, while tokenized deposits preserve that link.

Restricting digital money to stablecoins reduced bank deposits and led banks to finance fewer investment projects, while tokenized deposits enabled some higher-return projects. But when banks have strong incentives to take excessive risks, the researchers found that money backed entirely by safe assets can be preferable.

When deposits move faster

Tokenization could preserve the connection between deposits and lending while making those deposits easier to withdraw.

Banks can lend against deposits partly because customers do not all move their money at once, providing relatively stable funding for loans that may remain outstanding for years.

An August 2026 Dallas Fed analysis warned that tokenization could make deposits less stable by making money easier to move between institutions. A customer seeking a higher return could transfer funds almost immediately rather than leaving them at the same bank.

The potential effect is significant. Dallas Fed researchers estimated that roughly 80% of the interest-rate exposure taken by U.S. banks on longer-term assets is supported by the relatively stable characteristics of deposits. They calculated that reducing the expected life of deposits by 10% could reduce banks' capacity to hold longer-term assets by about $580 billion on a 10-year-equivalent basis.

Banks could compensate by holding more reserves and government bonds that can be converted into cash quickly, or by replacing deposits with longer-term borrowing. Either response could reduce the resources available for lending or raise its cost.

Faster payments are already providing clues about this trade-off. Brazil's Pix instant-payment network had around 200 million active users by the first quarter of 2026 and was processing roughly $650 billion each month. The Dallas Fed cited research finding that greater use of Pix led banks to hold more liquid assets, particularly government bonds, while reducing credit intermediation.

Tokenization remains at an early stage, but the experiments underway are testing an assumption embedded deep within modern banking. Deposits have always been money that customers can withdraw, while also serving as relatively stable funding that banks can lend.

Technology could make the first function considerably easier. Banks now have to determine how much of the second they can preserve.