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

A regulator contrasts tokenized deposits with stablecoins in terms of monetary and financial stability. Which statement is most consistent with the argument that tokenized deposits better preserve the singleness of money?

Tokenized deposits preserve singleness of money because they are par-redeemable claims on regulated banks, supported by deposit insurance and central bank settlement. This ties them to the same unit as other bank money, unlike stablecoins whose par value depends on a private issuer's reserves.

  1. ATokenized deposits are redeemable at par as claims on regulated banks that are backed by deposit insurance and central bank settlement, which anchors them to the same unit as other bank moneyCorrect
  2. BTokenized deposits trade at a floating exchange rate to bank deposits, which reveals their true price
  3. CTokenized deposits are unbacked, so no issuer can fail
  4. DTokenized deposits remove the need for any central bank settlement asset

Explanation

Singleness of money means all forms of money exchange at par. Bank deposit tokens are ordinary bank liabilities within the regulated, insured system with central bank settlement, so par convertibility is supported. Floating prices, absence of backing or removal of the settlement asset would undermine, not support, singleness.

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