BNY Mellon testing tokenized deposits to keep pace with blockchain-based finance shift

Bank of New York Mellon (BNY Mellon), the world’s largest custodial bank, is testing tokenized deposits to modernize its global payment infrastructure. The $55.8 trillion custodial bank seeks to keep pace with a growing shift toward blockchain-based finance.

According to reports, the effort, which is still in the exploratory phase, aims to let clients make payments using tokenized versions of their deposits. 

To that end, clients can transfer value instantly across borders, potentially reducing settlement times that can currently take days for large institutional payments. BNY currently handles approximately $2.5 trillion in payments daily.

Tokenized deposits are bank-issued, transferable digital coins that represent a claim on commercial bank money. Unlike cryptocurrencies, these tokens are backed by real deposits, ensuring stability and reducing volatility. 

BNY Mellon dives deeper into the blockchain ocean

Traditional Finance organizations are gradually increasing their use of the technology that underpins digital assets for fund transfers. BNY Mellon is the latest financial giant to make a move with its exploration of tokenized deposits. 

As far back as 2023, the company had voiced interest in pursuing certain initiatives, including tokenization, the use of distributed ledger technology, and digital cash. Now, by moving to decentralized ledgers, BNY will be able to settle transactions near-instantly and operate 24/7, a contrast with legacy correspondent networks. 

BNY’s Carl Slabicki told Bloomberg the technology could help banks “overcome legacy constraints,” allowing them to move money faster within their own networks and eventually across the wider financial system. 

BNY Mellon joins a growing list of major banks experimenting with tokenized funds. As reported by Cryptopolitan, JPMorgan began trialing its JPMD token in June on Coinbase’s Base blockchain, while HSBC recently rolled out a tokenized deposit service for corporate clients to facilitate cross-border currency transactions. 

Additionally, messaging network Swift has been developing a blockchain-based shared ledger prototype for real-time cross-border payments. In Europe, nine banks are building a MiCA-compliant euro stablecoin. At the same time, BNY Mellon would join the likes of Switzerland-based Digital Assets, Robinhood, and Gemini, which already launched their tokenized stocks across different regions.

Meanwhile, over the summer, BNY Mellon and Goldman Sachs teamed up to roll out tokenized money market funds for clients. The financial institution’s CEO, Robin Vince, has in the past said the bank wouldn’t be as aggressive as other lenders in trying to gain crypto deposits. 

BNY also has an active working relationship with a few top crypto firms, including San Francisco-based blockchain payments firm Ripple Labs Inc. BNY Mellon is the official custody partner for Ripple’s RLUSD.

It also has investments in top cryptocurrency projects, such as BlackRock’s iShares Bitcoin Trust ETF and Grayscale’s Bitcoin Trust ETF. The latest project is part of BNY Mellon’s plan to expand its crypto reach and modernize its infrastructure, which includes scaling real-time, instant, and cross-border payments.

Indian banks to pilot tokenized deposits

The Reserve Bank of India (RBI) will join commercial banks in the country to test tokenized deposits. This will make way for new payment systems that are based on blockchain. The RBI’s latest test, revealed by Chief General Manager Suvendu Pati today, will see commercial banks explore tokenized deposits.

For years, the RBI has sought to suppress crypto adoption in the country. However, a 2018 circular prohibiting banks from servicing crypto companies was eventually struck down by the Supreme Court. Still, the RBI remains broadly opposed to stablecoins.

While the RBI takes a negative view of stablecoins, it doesn’t oppose digital money more generally. In fact, the Indian CBDC has been in a large-scale pilot program for three years now. Tokenized deposits exist in the middle ground between stablecoins and CBDCs. This has caused several other central banks to favor tokenized deposits over stablecoins.

Earlier this year, Bank of England Governor Andrew Bailey said he would rather see banks tokenize deposits than issue stablecoins. He warned it could suppress the availability of credit.

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