The modern state is, above all, a debtor. Global public debt reached a record high of 102,000 billion dollars in 2025, and the International Monetary Fund projects that the global debt-to-gross domestic product ratio will approach 100% by 2029—a threshold not reached since the immediate postwar period. Yet this aggregate figure masks a more far-reaching asymmetry: emerging and developing economies consistently borrow at interest rates two to four times higher than those charged to advanced economies, meaning that debt service can absorb the bulk of government revenue and eliminate the fiscal space needed for education, health care, infrastructure, and climate change adaptation. For some of these countries, the burden of debt service could absorb nearly half of public spending and more than 50% of revenue in 2026–2027, which is quite telling of the weight of public debt[1]. Incremental reform won’t be enough to solve this debt crisis. Faced with this impasse, one word has been circulating in financial circles for the last few years: tokenisation. Converting a government bond into a programmable digital token, tradeable on a blockchain, settled in seconds rather than in many days. The promise is appealing: widen the investor base, lower borrowing costs, give constrained states some fiscal room to breathe. Does it deliver?

In this context, asset tokenization—that is, the representation of financial claims, government securities, or real assets as programmable digital tokens on distributed ledgers—has evolved from a technological curiosity into a political tool. Central banks, finance ministries, and multilateral institutions are increasingly presenting tokenization as a means of alleviating the structural constraints that debt imposes on the state’s capacity to act. This paper examines this interpretive framework and asks whether tokenization constitutes a genuine easing of the fiscal and monetary constraints faced by indebted states, or whether it merely reimagines debt instruments without addressing the underlying distribution of sovereign risk, market power, and monetary authority. The argument put forward here is that tokenization offers real but limited efficiency gains—in terms of market access, speed of settlement, and collateral mobility—while leaving intact, and in some respects even exacerbating, the deep political and economic asymmetries that restrict the state’s autonomy.

For years, U.S. debt was viewed as a paradoxical phenomenon: it was growing rapidly, yet without triggering any visible disruption. The United States seemed capable of weathering military shocks, financial crises, and a pandemic by pushing back against fiscal constraints through a single tool—borrowing—while the markets continued to buy Treasury securities at persistently low rates. This situation fueled the notion of a lasting exception, based on the dollar’s central role, the depth of the U.S. bond market, and the U.S. economy’s ability to attract global savings. However, recent developments reveal a shift in the economic landscape: the debt stock has become so high that the return of higher long-term rates is turning the interest burden into a determining factor in economic policy. As of December 31, 2025, total federal debt stood at $38,514 billion, of which $30,847 billion was held by the public, making the government far more sensitive to refinancing conditions than in previous decades.[2] Consequently, the stakes extend beyond the United States alone: they concern the stability of the international financial system, the attractiveness of dollar-denominated assets, and—particularly for Arab countries—the management of exchange rate regimes, reserves, and the cost of external financing.

The question is no longer whether U.S. federal debt will continue to rise. The real issue now is the political, economic, and financial cost of this trajectory. For nearly a quarter-century, the United States seemed to enjoy a unique privilege: financing wars, stimulus packages, a financial crisis, and then a pandemic through borrowing, without facing any lasting consequences. The dollar remained dominant, global demand for Treasury bonds stayed strong, and interest rates—which had long been low—created the illusion of “consequence-free” debt. This exceptional situation is now unraveling, as the debt burden has become enormous and the cost of refinancing has risen permanently. What tokenisation genuinely changes ? Three transformations are real and measurable. First, fractionalisation: while a conventional sovereign bond often requires a minimum ticket of $100,000, a tokenised instrument can be accessible from a few tens of dollars. This is now referred to as « micro-sovereign funding, » opening access to diaspora savings and domestic retail investors — a pool of capital previously kept out of debt markets. Second, programmability: smart contracts can automatically execute interest payments, inflation indexation, or bespoke maturities, opening the way to new instruments — « standard-of-living » bonds, forward-starting bonds, savings products designed specifically for diaspora communities. Third, settlement speed: in 2026 Japan launched a consortium bringing together its three megabanks and BlackRock Japan to move Japanese government bonds toward continuous, near-instant settlement. The European Central Bank has, since March 2026, accepted securities issued on distributed ledgers as eligible collateral for Eurosystem refinancing operations. The UK Treasury selected the HSBC Orion platform for its first « digital gilt. » The Bank of Greece[3], the Banque de France, and Euroclear are running parallel experiments. The movement is under way, and it is accelerating.

Three structural features of the prevailing sovereign debt regime bear directly on state capacity. First, domestic debt in most developing economies is disproportionately held by the domestic banking sector, producing a doom-loop dynamic in which governments crowd out private credit, banks depend on sovereign paper for returns, and both become mutually hostage to refinancing cycles. Second, the investor base for sovereign paper, a narrow set of domestic banks supplemented by periodic access to Eurobond markets, affords issuing governments little negotiating leverage over pricing. Third, the instruments themselves (treasury bills, Eurobonds, syndicated loans) were designed for a world of large-denomination issuance, centralised clearing, and rating-agency-mediated creditworthiness; this architecture structurally excludes retail savers, diaspora populations, and smaller institutional investors, while imposing minimum investment thresholds — often around $100,000 — that concentrate ownership among a narrow institutional class. The consequence, well documented in the OECD’s 2026 Global Debt Report[4], is a market under mounting strain: record issuance, shortening maturities as debt managers respond to elevated term premia, and a shifting investor base whose composition — increasingly leveraged, and increasingly non-bank — introduces new sources of volatility even as headline liquidity indicators have improved. In other words, the debt constraint is not merely a matter of quantum; it is a matter of market structure, and it is this structural dimension that tokenisation purports to address.

Tokenisation converts a financial claim into a cryptographically secured digital token, recorded on a shared or distributed ledger, whose transfer, interest payment, and redemption can be executed through self-executing smart contracts. Three properties distinguish tokenised instruments from their conventional counterparts and are directly relevant to the debt constraint. Fractionalisation and market access. Whereas conventional sovereign bonds are typically issued in large denominations that exclude retail participation, tokenised instruments can be fractionalised to minimum investment thresholds as low as several tens of dollars. This enables what has been termed « micro-sovereign funding »: the direct mobilisation of domestic retail savings and diaspora capital as a funding source for the state, bypassing the concentrated institutional investor base that has historically set the terms of sovereign borrowing. Programmability. Smart contracts can encode interest schedules, covenants, and maturity structures directly into the instrument, reducing reliance on intermediaries for administration and enforcement. This has given rise to a new generation of instrument design, inflation-indexed « standard-of-living » bonds, forward-starting bonds timed to funding needs, and diaspora-oriented savings instruments, that would be costly to administer under conventional securities infrastructure. Settlement efficiency and collateral mobility. Distributed-ledger settlement permits near-instantaneous, atomic delivery-versus-payment, collapsing the T+1 or T+2 settlement cycles that characterise conventional bond markets into continuous, potentially 24/7 clearing. Japan’s 2026 initiative to place Japanese government bonds on blockchain infrastructure — a consortium spanning the country’s three megabanks alongside BlackRock Japan[5] and major securities houses — is explicitly oriented toward T+0 settlement and the more efficient reuse of government bonds as repo collateral. The European Central Bank’s decision, effective March 2026, to accept DLT-issued securities as eligible collateral for Eurosystem credit operations formalises this logic at the level of monetary policy implementation itself.

The pace of sovereign experimentation has accelerated markedly. The Bank for International Settlements documents more than sixty tokenised bonds issued globally by mid-2026, worth roughly $8 billion in aggregate, a modest sum relative to an $80 trillion government bond market, but one with a diverse issuer base spanning Slovenia, Hong Kong, the Philippines, Thailand, the European Investment Bank, the World Bank, and several Swiss cantons. The United Kingdom’s HM Treasury selected HSBC’s Orion platform in February 2026 to deliver its first Digital Gilt Instrument, positioning the UK among the first G7 states to issue a blockchain-native sovereign bond. The Bank of Greece’s « Project Sovereign » has simulated the full lifecycle of a digital sovereign bond, issuance, secondary trading, coupon payment, and redemption, under the European Union’s DLT Pilot Regime, while the Banque de France and Euroclear have launched a parallel initiative, « Pythagore, » to tokenise the euro area’s short-term commercial paper market, timed to coincide with the Eurosystem’s own wholesale central bank digital currency project, « Pontes. » This landscape suggests an emerging institutional consensus, spanning both advanced and developing economies, that tokenised government debt may come to constitute — together with tokenised central bank reserves and tokenised commercial bank money — a foundational « trilogy » underpinning a future tokenised financial system, in which government bonds retain their traditional role as the benchmark risk-free asset and principal form of high-quality collateral, but within a materially faster and more programmable market infrastructure.

Several constraints temper the transformative claims made for sovereign tokenisation. Legal harmonisation remains incomplete: Germany’s Electronic Securities Act, the EU’s Pilot Regime, and comparable frameworks elsewhere are jurisdiction-specific, and cross-border interoperability between tokenisation platforms is still experimental rather than operational at scale. Market depth is correspondingly shallow — the entire tokenised bond market remains a rounding error against the conventional market — such that liquidity and price discovery for tokenised instruments cannot yet be assumed to match those of conventional benchmarks. The disintermediation of domestic banking sectors, often presented as a benefit, carries a corollary risk: if tokenisation genuinely diverts retail and diaspora savings away from bank deposits toward direct sovereign holdings, this could weaken bank balance sheets and undermine domestic credit creation in precisely the economies least able to absorb such a shock. Finally, the concentration of technical and custodial infrastructure among a small number of private platforms introduces cybersecurity and operational-resilience considerations of a different character from those governing traditional, more distributed clearing and settlement systems. Tokenisation is best understood not as a resolution of the sovereign debt constraint but as a redesign of the market infrastructure through which that constraint is administered. It can lower transaction costs, widen the investor base, accelerate settlement, and enhance collateral mobility — outcomes with genuine fiscal value, particularly for states able to mobilise diaspora and retail capital in local currency. But it does not alter the macroeconomic fundamentals, institutional credibility, and geopolitical hierarchies that determine sovereign risk pricing in the first instance, and it introduces new forms of technological and infrastructural dependency whose long-term implications for state autonomy remain insufficiently theorised. States seeking genuine fiscal relief from debt constraints will need to treat tokenisation as one instrument among several — alongside debt restructuring frameworks, domestic revenue mobilisation, and reform of multilateral lending architecture — rather than as a substitute for the harder political work of correcting the asymmetries that tokenisation, for now, chiefly renders more efficient.

Tokenisation deserves the attention it is getting: it reduces real transaction costs, widens access to sovereign financing, and speeds up settlement. For a state searching for room to manoeuvre, these are not negligible gains. It redesigns the infrastructure of the debt market; it does not redistribute the power exercised within it. States that look to tokenisation alone as the answer to their fiscal constraints may find, in practice, that they have simply changed creditor — without changing the balance of power. Finally, it should be an instrument rather a solution.

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[1] Public debt is divided into domestic public debt, held by economic agents residing in the issuing country, and external public debt, held by foreign lenders. Public debt refers to all loans taken out by government entities that have not yet been repaid. External debt refers to all amounts owed to foreign lenders or international organizations. It includes debt owed by the government as well as by businesses and individuals. The total amount owed to creditors constitutes the external debt. A low debt-to-GDP ratio may sometimes simply reflect an underdeveloped economy, lacking significant borrowing capacity or a solid financial infrastructure.

[2] U.S. Department of the Treasury, Fiscal Data, “Debt to the Penny,” debt levels as of December 31, 2025.

[3] Global Government Finance, « Bank of Greece simulates sovereign digital bond issuance, » February 2026.

[4] OECD, Global Debt Report 2026: « Sustaining Debt Market Resilience Under Growing Pressure », OECD Publishing, Paris, 2026.

[5] FinanceFeeds, « Japan Moves to Tokenize Government Bonds on Blockchain With Goal of 24/7 Settlement, » May 2026.