BIS Chief Coins New Term ‘Finternet’ to Promote Tokenization as Solution for Current Financial System Challenges
BIS General Manager Agustin Carstens and Nandan Nilekani, co-founder of Infosys, have introduced the concept of the “Finternet,” a connected financial system based on tokenized assets. This innovative approach is aimed at addressing the limitations of the current financial infrastructure by leveraging smart contracts to manage assets programmatically.
According to a recently published paper, the Finternet represents a network of interlinked financial ecosystems designed to empower individuals and businesses by placing them at the center of their financial activities. Tokenization lies at the core of this system, enabling the representation of real-world assets and financial instruments in a single platform governed by smart contracts. This technology transforms the way financial transactions are conducted by incorporating value and regulatory information within the token itself.
The Finternet leverages the BIS Unified Ledger, an all-encompassing system that encompasses tokenized central bank money, commercial bank deposits, and other tokenized assets. By utilizing the programmability of this platform, users can access financial instruments through applications without the need to directly manage complex concepts. This simplifies the process and enhances accessibility for participants.
To ensure compliance within the Finternet, existing regulations would need to be applied to these interconnected systems, minimizing the need for specific legal frameworks. This approach is particularly relevant in emerging markets where the development of such frameworks might be limited.
Carstens has previously emphasized that tokenization is an enabling technology, with the main challenge lying in the establishment of legal and regulatory frameworks that ensure compliance within these networks. The Finternet represents a step towards addressing these challenges and revolutionizing the financial landscape.