I. The Infrastructure Gap: Analogue Central Banking in the Era of Tokenized Finance
The architecture of global central banking was designed for an analog era defined by business-hour windows, centralized ledgers, and a heavy reliance on commercial bank intermediaries. Today, that architecture is being bypassed by a financial system that has already moved on-chain. As of October 2025, global stablecoin market capitalization exceeded $300 billion USD, with transaction volumes now rivaling mid-sized national payment systems.
For policymakers, the “Why Now” is not driven by a desire to accommodate crypto-assets, but by the necessity of fulfilling the central bank’s core mandate: maintaining the stability of the financial system. When billions of dollars in value move daily through commercial bank intermediaries to settle digital asset trades, a gap is created. This gap forces digital asset firms to depend on third-party credit risk, introduces counterparty fragility, and leaves regulators without direct visibility into a rapidly expanding sector.
Waiting another decade to modernize central bank access is a strategic risk. If central banks do not provide the monetary foundation — the “safest money” — on the infrastructure where financial activity is actually taking place, they risk ceding the 21st-century financial stack to private — and possibly increasingly unregulated — alternatives. Rather than resist this shift, central banks must extend their core capabilities to the infrastructure of the future.
Chart 1: Market Capitalization of Tokenized Assets (USD, Billions) from 2020–2025
Sources: Stablecoins: The Emerging Markets Story (Castle Island Ventures, Brevan Howard Digital), Tokenisation Market Size, Share, Trends, & Industry Analysis Report (Polaris), DefiLlama, RWA.xyz, industry estimates
Note: The stablecoin dominance is visible immediately, which actually tells the right story: this market is real and scaled, and T-bonds/equities are the fastest-growing tail that signals institutional adoption accelerating. The stacked format makes the composition shift readable.
II. Global Regulatory Convergence of Tokenized Finance
The global regulatory landscape has shifted from skepticism to the formal legitimization of virtual assets (VAs) and tokenized finance. Jurisdictions are no longer debating if tokenized finance belongs in the ecosystem, but are instead establishing the “same activity, same risk, same rules” framework to integrate it.
This trend is characterized by a move toward institutional standards. Across the world, virtual assets legislation is passing and regulatory frameworks are being enacted. In the European Union, the MiCA regulation has already seen over 40 CASP licenses issued as of late 2025, providing a unified framework for stablecoin issuers and service providers. In the United States, the GENIUS Act and Singapore’s MAS Stablecoin Regulatory Framework have created statutory pathways for stablecoins to be recognized as legitimate payment instruments, provided they are 100% backed by high-quality liquid assets, including central bank reserves. Dubai has a specialized VARA regime and one of the clearest VASP rulebooks, and the Bangko Sentral ng Pilipinas mandate for stablecoin 100% reserve backing aligns with converging G10 standards.
This regulatory maturing is transforming tokenized assets into a standardized component of the global financial stack. The convergence of regulatory norms makes the extension of central bank access a logical prudential step.
Chart 2: Global Snapshot of Development of Virtual Assets Legislation & Regulation (2021–March 2026)
Source: industry analysis
Note: This chart shows the development of virtual assets legislation and regulation over the past 6 years. The environment is evolving to more jurisdictions passing specific virtual assets and stablecoin legislation.
The Global Landscape: Central Bank Access and Digital Asset Firms
A clear trend is emerging across major financial centers: regulated digital asset institutions are gaining direct access to central bank infrastructure. This is happening along two distinct but related tracks — integration with existing RTGS infrastructure for tokenized settlement, and access to central bank money as reserve backing for stablecoins.
RTGS Integration: Tokenized Interoperability
The first track is a technical infrastructure question: as tokenized finance scales, two settlement systems — blockchain-based and traditional RTGS — are becoming increasingly interdependent. The question is no longer whether they should interface, but how formally and under what framework. As large economies bring capital markets on-chain, the risk of not building that interface grows more pronounced. A central bank that declines to integrate with tokenized settlement infrastructure does not neutralize the interdependency — it simply loses visibility and influence over it.
The examples already emerging are integration stories, not access stories. Switzerland’s Project Helvetia is building a tokenized interface between the SIX Digital Exchange and the Swiss National Bank’s settlement infrastructure, making central bank money the settlement asset within a live tokenized securities market. Singapore conducted live interbank lending settled in wholesale CBDC through Project Guardian in late 2025. Hong Kong is piloting equivalent infrastructure through Project Ensemble. In the United States, the Federal Reserve Bank of Kansas City approved a master account for Kraken Financial in March 2026 — the first for a digital asset firm — making Fedwire the dollar settlement layer for a parallel financial system that already processes trillions in annual volume. Most recently, the European Central Bank’s Project Appia is exploring tokenized wholesale settlement in digital euro, signaling that the world’s second-largest reserve currency issuer is moving in the same direction.
Stablecoin Reserves: Central Bank Money as the Safety Anchor
A parallel development concerns where stablecoin reserves are held. Singapore finalized a stablecoin framework and, in late 2025, conducted live interbank lending settled in wholesale CBDC through Project Guardian. Hong Kong is piloting equivalent infrastructure through Project Ensemble, with the first stablecoin issuer licenses granted from March 2026. In the United States, the GENIUS Act explicitly lists central bank reserves as a permitted reserve asset — creating a statutory pathway for stablecoin issuers to hold balances directly at the Federal Reserve rather than at commercial banks.
If these developments converge into a global standard, the implications are significant: reduced cross-border settlement risk, fundamental restructuring of correspondent banking, and central banks would gain direct visibility into a financial sector they currently observe only through intermediary reporting.
III. The Case for Broadened Access: Extending Sovereign Capability
Granting regulated digital asset firms access to central bank services delivers tangible benefits across multiple policy dimensions.
- Strengthening Sovereign Currency Competitiveness
Granting direct access to central bank services is a tool for currency statecraft. Stablecoins denominated in major currencies like the USD or euro are becoming the default payment instruments in cross-border blockchain transactions. If central banks facilitate settlement in their currencies through regulated, DLT-native rails, they reinforce the global role of those currencies.
Critics often cite deposit migration — the fear that money will flee commercial banks for the safety of central bank-backed digital tokens — as a reason to deny access. However, this concern is increasingly viewed as overblown. On-chain activity is a net positive for the sovereign that outweighs this risk. If the entire sector is allowed to grow within a regulated framework, the net interaction between Virtual Asset Service Providers (VASPs) and commercial banks for operational needs (payroll, taxes, and ramps) will net grow, providing a new stream of stable liabilities for the traditional sector.
- The Systemic Risk Advantage: De-risking the Core
The primary advantage of broadening access is the reduction of systemic intermediary risk. The current architecture creates systemic fragility at two distinct layers, and broadened access addresses both simultaneously.
At the settlement layer, digital asset firms routing fiat transactions through correspondent banks inherit those institutions’ credit risk and operational fragility. A commercial bank failure doesn’t just affect its own depositors — it severs the settlement infrastructure of every digital asset firm depending on it. RTGS integration eliminates this: when settlement runs directly through central bank infrastructure, as Kraken’s now does via Fedwire, value settles as a central bank liability rather than a commercial bank deposit. The settlement layer of the tokenized economy becomes structurally independent of commercial bank solvency.
At the reserve layer, stablecoin issuers holding reserves at commercial banks expose their instruments to the credit risk of those institutions. The GENIUS Act’s provision permitting central bank reserves as a reserve asset directly addresses this — enabling stablecoin issuers to hold the ultimate risk-free asset as a proportion of reserves. These two developments together help de-risk the tokenized financial stack from the ground up.
- The Direct Supervisory Advantage
When settlement runs through RTGS infrastructure directly, central banks gain real-time, transaction-level visibility into liquidity and settlement flows. This represents more than just removing an intermediary. It is a structural shift in the granularity and timeliness of supervisory data available to central banks over a sector that currently processes trillions in annual volume.
Direct access replaces “indirect observation” where central banks observe digital asset settlement flows through second-hand reporting — which is wholly undesigned for the flows of virtual assets. This reduces the “halo effect” risk by ensuring the central bank has a direct line of sight into the firm’s operational integrity at the settlement layer itself.
IV. Risks and Prudential Concerns
Broadening access to central bank services is not without risk, and these concerns must be explicitly addressed.
Deposit migration — the concern that consumers will shift funds from commercial banks to central bank-backed digital instruments — is frequently cited as a risk, potentially impairs banks’ access to low-cost funding and complicates monetary policy transmission. Two points sharpen the response. First, this risk applies specifically to stablecoin reserve backing, not to RTGS integration — a digital asset firm settling through Fedwire creates no deposit migration pressure whatsoever. Second, the monumental stablecoin growth over the past four years has not produced measurable commercial bank deposit outflows; the two have expanded in parallel. Provisions in both GENIUS and MiCA prohibiting stablecoins from paying yield to holders further limit the mechanism by which migration would occur.
Anti-money laundering and sanctions compliance remain essential. The GENIUS Act explicitly subjects stablecoin issuers to the Bank Secrecy Act and requires the capability to freeze, seize, or burn tokens pursuant to lawful orders. Any framework for broadened access must maintain equivalence with the AML/KYC standards applied to traditional banking institutions.
There is also the question of systemic concentration risk. If a small number of large stablecoin issuers or digital asset exchanges gain direct central bank access, they could become systemically important without the capital and liquidity requirements traditionally applied to such institutions. Graduated, tiered frameworks — as contemplated by the Fed’s Account Access Guidelines — are essential to calibrate obligations to risk profiles.
V. The Maturation of Privacy: Beyond the Transparency Paradox
Privacy is frequently cited as a barrier to central bank modernization yet the historical tension between public ledger transparency and institutional confidentiality is no longer an insurmountable barrier. The current landscape reveals a technological maturation where Privacy-Enhancing Technologies (PETs) have transitioned from academic theory into production-grade financial infrastructure where “transparency” and “confidentiality” are no longer mutually exclusive.
What is more, the architecture of blockchain-based systems offers a more nuanced and effective approach to privacy than is commonly understood.
A Two-Sided Privacy Framework
- User-Level Privacy: The Role of Regulated Service Providers. A tokenized central banking model does not require central banks to monitor individual transactions or end-users — that has never been their role, and it should not become one. Commercial banks, exchanges, and licensed stablecoin issuers bear KYC, AML, and transaction monitoring obligations under regulatory frameworks. Critically, much of this compliance data already exists on public blockchain ledgers, visible to regulators and compliance teams in real time. This is a superior transparency model to the opaque correspondent banking system it replaces. The central bank provides the monetary infrastructure; compliance sits with the service providers, where it belongs.
- Institutional Confidentiality. While user-level transparency is a feature, institutional balance information must remain privileged. Publicly visible reserve positions create exploitable vectors for front-running, market manipulation, and targeted cyberattacks. Any global framework should apply the same confidentiality standards to digital asset firms that currently apply to traditional reserve account holders. Switzerland’s Project Helvetia provides the operational model: wholesale tokenized central bank money issued on a permissioned DLT platform with controlled visibility, preserving institutional confidentiality while maintaining settlement finality and full regulatory auditability.
Modern tokenized banking utilizes a multi-layered stack of Privacy-Enhancing Technologies — including Zero-Knowledge Proofs and permissioned ledgers — that delivers what might be called confidential transparency: full auditability for regulators, controlled visibility for institutions, and privacy for end-users. Just as the risk of data breaches did not prevent governments from adopting email, the privacy challenges of early DLT have not stalled adoption — they have driven the development of a robust, dedicated industry to not just protect against, but to solve them.
Financial players such as J.P. Morgan’s Kinexys are increasingly adopting these technologies for their own institutional-grade DLT infrastructure. Trust from such a major global institution is strong approval.
VI. The Case for Tokenized Central Banking: The Infrastructure of the Future
It is both necessary and feasible to expand access to existing central bank services, provided that appropriate safeguards are in place, as outlined in the preceding sections. But the deeper opportunity lies not merely in granting access to legacy rails, but in modernizing the rails themselves.
While stablecoins have bridged the gap between traditional finance and blockchain, they remain inherently fragile because they are held at commercial banks, money market instruments, or government securities — all high-quality liquid assets, but ultimately claims on commercial institutions subject to their credit risk. There has been no mechanism by which stablecoin issuers can hold reserves in the ultimate risk-free asset: central bank money.
This is not a niche problem. Stablecoins have emerged as the primary bridge between traditional finance and blockchain-based systems and their scale has reached systemic proportions. USDC (issued by Circle), USDT (issued by Tether), and PayPal USD collectively represent hundreds of billions of dollars in circulating value — volume that has accelerated sharply over the past three years. Stablecoins now process over $46 trillion in annual transaction volume. They serve as the de facto unit of account in decentralized finance, the primary medium for cross-border remittances on blockchain rails, and an increasingly important tool for institutional settlement. The GENIUS Act, signed in July 2025, formalized a market that had already reached systemic scale — and given that over 90% of stablecoins are USD-pegged, that formalization carries global weight.
Chart 3: Growth in Stablecoin Transaction Volume (2018–2025)
Source: Allium
The logical outcome of the current regulatory trajectory is settlement in the safest form of money available: tokenized central bank money, and the advantages of tokenized central bank money for wholesale settlement are compelling.
- Atomic Settlement: Enabling the simultaneous, instantaneous exchange of assets and payment, eliminating settlement risk.
- 24/7 Availability: Removing the limitations of legacy business-hour windows.
- Programmable Compliance: Using smart contracts to enforce regulatory conditions at the point of settlement.
- Native on-chain central bank money: the safest monetary asset available, accessible within the infrastructure where financial activity is increasingly taking place.
This is not about replacing traditional payment systems. It is about extending central bank capability to the infrastructure of the future. The goals of consumer protection, financial stability, and innovation are not in tension — they are mutually reinforcing. Consumer protection is strengthened when settlement occurs in central bank money rather than through chains of commercial bank intermediaries. Financial stability is enhanced when regulators have direct visibility into settlement flows. And innovation is enabled when central banks provide the monetary foundation on which new financial products and services can be built within a regulated framework.
Conclusion
The financial system is already migrating on-chain. The question for central banks is whether they will anchor this transition or be left behind by it. The precedents set by Kraken, Project Helvetia, and Project Guardian demonstrate it is both achievable and prudentially manageable.
Central banks that extend access to their services under clear, principle-based frameworks — and that invest in tokenizing their own liabilities for wholesale settlement — will strengthen their mandates.
About EMTECH
EMTECH is an award-winning, pioneering provider of modern central banking technology and services. Our platform connects central banks and Financial Service Providers in a seamless way for various activities such as Sandboxing, Licensing, Supervision, Compliance and Currency Management.
Headquartered in New York with a globally distributed team, EMTECH builds enterprise software as a service that digitalizes central banking services and makes them highly consumable via APIs, smart contracts and AI.
About the Authors
Jill Lagos Shemin is deeply focused on modernizing financial ecosystems and the infrastructure for broader access to finance, she is dedicated to working on tokenization and with stakeholders to assess how to manage and grow the quickly digitizing financial ecosystems of today’s world.
She has been working for over 10 years in digital financial services in emerging markets at the edge of innovation, product, and policy. Her work spans many areas of digital development and the digital finance ecosystem, including regulatory innovation, fintech regulation, consumer protection, and payments.
She is currently the Director of Policy, Strategy, and Capacity Services at EMTECH, providing modern regulatory infrastructure to central banks and regulators for stablecoins, digital assets and regulatory sandboxes to manage innovation. Prior to EMTECH, she worked at the Cambridge Centre for Alternative Finance at the University of Cambridge Judge Business School, and still holds a role there as a Research Affiliate.
Carmelle Cadet, a passionate advocate for financial inclusion and economic development, founded EMTECH to help central banks around the world with adopting modern technologies to provide financial inclusion by design and develop resilient financial market infrastructures.
Carmelle engages with central banks to enable their inclusive transition to the digital currency era. After a ten-year career at IBM in corporate finance/treasury and as a business development executive, Carmelle is now a sought-after thought leader and innovator in financial services, central banking technology and blockchain with the mission of providing everyone access to a digital cash infrastructure. She earned her Executive MBA from New York University.
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