Professor says tokenised deposits won't transform banking

A Loughborough University study has challenged claims that tokenised bank deposits will transform banking, arguing that many of the supposed benefits can already be delivered through existing systems.

The paper examines tokenised deposits, which represent money held in a bank account as a digital token, and questions whether they amount to a significant innovation for mainstream banking. Supporters say the model could improve the speed and automation of payments. The study argues that these outcomes do not depend on tokenisation.

Professor Alistair Milne of Loughborough Business School wrote the policy note for SUERF, a group that brings together central bankers, regulators, academics and finance professionals. He argues that banks already use computer systems and databases that can be programmed to handle many of the same tasks now being presented as new.

Debate over digital money has gathered pace as banks, policymakers and financial technology groups explore alternatives to traditional account-based systems. Tokenised deposits have emerged as one of several concepts under discussion, alongside stablecoins and central bank digital currencies. Advocates say they could help create faster payments, available at all hours and easier to link to automated instructions.

Milne's paper takes a narrower view of what is actually new. It argues that blockchain, the record-keeping technology often associated with cryptocurrencies such as Bitcoin, is not necessary for most of the practical gains linked to tokenised deposits. In his assessment, conventional bank infrastructure can already support much of the same functionality without converting deposits into tokens.

"Much of the current discussion suggests tokenised deposits will transform banking. My research indicates that the technology itself is not the key issue. Most of the promised advantages can already be achieved using conventional banking systems. In many cases, tokenised deposits are better understood as a new way of packaging existing capabilities rather than a fundamentally new form of money," said Professor Alistair Milne, Loughborough Business School, Loughborough University.

The study does not dismiss tokenised deposits entirely. Instead, it identifies a limited set of circumstances in which they may offer a clearer advantage, particularly within the operations of large international banks serving corporate clients across several markets.

Cross-border use

One of the stronger use cases, the paper argues, arises when a global company moves money between countries and currencies within the same banking group. In that situation, payments can be automated more easily because the transfer remains within one bank's internal systems rather than moving through several institutions.

That distinction matters because payments between different banks still require interbank settlement. This brings a series of established constraints, including regulation, security checks and the management of financial risk between institutions.

The paper argues that tokenising a deposit does not remove those underlying frictions. Even if the customer-facing representation of money changes, banks must still complete the same core settlement and compliance steps when funds move across institutional boundaries.

Wider debate

The findings add to a broader policy discussion over whether new forms of digital money represent genuine structural change or simply a redesign of existing financial processes. Banks and regulators have been assessing how far distributed ledger systems can improve payments, settlement and record-keeping, especially in wholesale and cross-border markets.

Milne's intervention is likely to resonate with those who question whether the financial sector is overstating the novelty of token-based systems. The paper suggests the real barriers to better payments are not always technological, but often lie in the legal, regulatory and risk frameworks that govern transactions between separate institutions.

The paper also highlights a divide in the digital money debate. Some proposed systems promise gains by changing the form of money itself, while others seek improvements through better integration of existing infrastructure. Milne's argument places tokenised deposits closer to the second category.

For banks, that could shape investment decisions. If the same results can be achieved through upgrades to current databases and payment systems, the commercial case for shifting to tokenised deposits may be weaker than some advocates suggest, especially in domestic banking where established systems are already deeply embedded.

At the same time, the paper leaves room for more targeted adoption where specific operational benefits can be shown. Large multinational banks handling internal cross-border flows may still find token-based structures useful in defined cases, even if the model falls short of a broader banking revolution.

The study's central conclusion is that the hardest parts of modern payments do not disappear simply because deposits are represented differently in software. As Milne argues, the most important constraints often emerge when money must move between institutions rather than within them.

Those frictions remain central to banking, regardless of whether a deposit is recorded in a conventional account ledger or represented as a token. The paper argues that turning deposits into digital tokens does little to remove these underlying challenges.