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FRM Part II · FRM Exam Part II · Tokenization and Financial Market Inefficiencies

A regulator compares tokenized deposits with unbacked or fiat-backed stablecoins in a payment system. Which characteristic most clearly supports the argument that tokenized deposits preserve the 'singleness' of money better than stablecoins?

Tokenized deposits support singleness of money because they are liabilities of regulated banks, sit within the existing bank money system and settle at par in central bank money. This institutional backing keeps them exchangeable one-for-one with other bank money, unlike stablecoins that can depeg.

  1. AThey are issued by many unregulated entities competing on yield
  2. BThey are liabilities of regulated banks, remain part of the bank money system, and are settled at par in central bank moneyCorrect
  3. CThey have no link to the banking system
  4. DThey depend on voluntary reserve disclosures by issuers

Explanation

Singleness means all forms of money trade at par. Tokenized deposits are ordinary bank deposits in token form, benefiting from prudential regulation, deposit protection and par convertibility via central bank settlement. Stablecoins lack these features and can trade at discounts.

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