Tokenized bank deposits, while promising faster and more efficient transactions, could inadvertently drive up the cost of credit in the United States, according to economists at the Federal Reserve Bank of Dallas.
The Warning from the Dallas Fed
Economists at the Dallas Fed have raised concerns that the growing push toward tokenized and programmable deposits may undermine the stability of bank funding. Traditional deposits tend to remain parked at banks, giving lenders a reliable and inexpensive base of capital from which to issue loans.
Tokenized deposits, by contrast, could move much more quickly and respond automatically to market conditions through programmable features. That speed and flexibility, while beneficial to depositors, may make funding far less predictable for banks that rely on it.
When money can move at the speed of code, the cheap and stable funding banks depend on may no longer stay put.
Why Credit Costs Could Rise
If deposits become more volatile and prone to rapid outflows, banks may be forced to seek alternative sources of funding that are typically more expensive. Passing those higher costs along could translate into pricier loans for households and businesses.
The economists suggest that the very qualities making tokenized deposits attractive — instant settlement and automated programmability — introduce new risks to how banks manage liquidity. A funding base that can be redeployed instantly is harder to count on during periods of stress.
Key considerations highlighted include:
- Programmable deposits may reduce the stability of bank funding
- Banks could turn to costlier alternatives to replace lost deposits
- Higher funding expenses may ultimately be reflected in loan pricing
The findings add a note of caution to an industry increasingly enthusiastic about tokenization, underscoring that innovation in payments and settlement carries trade-offs that regulators and lenders will need to weigh carefully.