The Federal Reserve Board published a speech by Governor Lisa D. Cook arguing that tokenization of financial assets could improve collateral mobility, liquidity management, settlement efficiency and cross-border market access, while creating new financial stability issues if it scales. Speaking at the Central Bank of West African States Conference on Digital Assets in Dakar, she said tokenization should be integrated with, rather than replace, traditional market infrastructure, and said the Federal Reserve is researching the technology and engaging with the Bank for International Settlements, the Financial Stability Board, peer central banks and industry. Cook said U.S. tokenized assets have more than doubled in market capitalization over the past year to around USD 25 billion, led by government bond funds, with credit funds and money market funds also growing quickly. She focused on tokenized representations of conventionally issued assets and said smart contracts and distributed ledger technology could support intraday repo, more flexible margining, faster multi-leg and multicurrency settlement, greater competition and fractional ownership, but also change redemption incentives, expose issuers to shocks in secondary markets, increase links between digital assets and traditional finance through collateral and reserve holdings, and introduce operational and cyber vulnerabilities, especially in more automated systems.

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