The paper, Tokenized deposits: Old wine in new bottles?, argues that tokenized bank deposits (money in your bank account represented as a digital token) have been hailed as the future of finance despite offering surprisingly little that banks cannot already do using existing technology.
Supporters say tokenized bank deposits could make payments faster, smarter and available around the clock.
However, according to Professor Alistair Milne, of Loughborough Business School, many of these improvements are already possible using the computer systems banks rely on today.
Advocates believe this could make it easier to automate payments and move money instantly, particularly when combined with blockchain technology, the digital record-keeping system best known for powering cryptocurrencies such as Bitcoin.
However, in the policy note, written for SUERF – an independent, non-profit organisation that brings together central bankers, financial regulators, academics and professionals – Professor Milne argues that blockchain is not essential for most of these benefits.
Instead, he says banks' existing databases can already be programmed to carry out many of the same automated tasks, making the supposed technological breakthrough far less revolutionary than many believe.
Prof Milne said: “Much of the current discussion suggests tokenized 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, tokenized deposits are better understood as a new way of packaging existing capabilities rather than a fundamentally new form of money."
The paper explains that tokenized deposits can offer genuine advantages in some situations, particularly for large international companies moving money between different countries and currencies within the same global bank.
In these cases, payments can be automated and completed more efficiently because the money never has to leave that bank's own systems.
But the picture changes when money moves between different banks.
Those payments still require banks to settle transactions with one another, a complex process involving regulation, security checks and financial risk.
Prof Milne argues that turning deposits into digital tokens does little to remove these underlying challenges.
ENDS