Banks Are Slowly Embracing Digital Money

The Shift to Digital

Big banks in the U.S. are quietly revolutionizing traditional financial products by creating digital versions. They're focusing on tokenizing deposits, funds, and custody, rather than rushing into new crypto assets. This transformation is happening behind the scenes, particularly in wholesale payments and settlement.

Tokenized Deposits

Tokenized deposits are at the forefront of this change. These are digital representations of bank deposits, distinct from stablecoins issued by non-bank entities. JPMorgan has its JPM Coin system, enabling real-time transfers on a blockchain. Citi has also entered the fray with its tokenized cash service, facilitating millions in transfers for institutional clients.

The New York Fed's Involvement

The New York Fed has been actively involved, testing a system with several major banks. This system simulates interbank payments using tokenized deposits and a theoretical central bank digital currency (CBDC).

Tokenizing Real-World Assets

Banks are exploring the tokenization of real-world assets like private credit and commercial real estate. This innovation could enhance liquidity and make fractional ownership more accessible, giving traditional finance an edge over typical crypto models.

Custody Solutions

BNY Mellon has developed a digital asset custody platform, allowing institutional clients to hold and transfer Bitcoin and Ether. Regulators have been clarifying the boundaries of what banks can do with crypto assets, emphasizing caution while permitting certain activities.

Tokenized Funds

Beyond payments and custody, banks are experimenting with tokenized funds. J.P. Morgan Asset Management launched a tokenized money market fund on the Ethereum blockchain. This fund is a private, tokenized version of a traditional money market fund, demonstrating how asset managers are testing public blockchains within regulatory frameworks.

Regulatory Evolution

The regulatory environment is evolving. The OCC has clarified that national banks can engage in certain crypto-related activities, such as custody and stablecoin payments. These developments indicate that banks are preparing for a digital future in a cautious and supervised manner.