Isabel Schnabel of the ECB discusses the role of central bank digital currencies, tokenisation benefits, and how central banks should adopt on-chain solutions to modernise monetary policy and settlement infrastructure.
Isabel Schnabel, Member of the Executive Board of the ECB, delivered a speech at the Jackson Hole Economic Policy Symposium on “Financial Innovation: Implications for Payments and Policy”. She discussed the emergence of tokenisation in wholesale finance, its benefits, and the role of central banks in adopting on-chain solutions.
Tokenisation enables digital representation of financial assets and money on programmable platforms, offering benefits such as atomic settlement and programmability. These can improve settlement speed, safety, and cross-border transaction efficiency.
In the euro area, tokenisation can help reduce market fragmentation and lower barriers to entry for new market participants. However, a trusted settlement asset remains essential for safe and stable markets.
Stablecoins are considered complements, not substitutes, for central bank money due to the need for safety and elastic supply. Central bank reserves should be issued on-chain to leverage programmability for monetary policy, collateral management, and liquidity provision.
Schnabel outlined three options for central bank reserves in a tokenised environment: issuing reserves directly on a programmable ledger, linking current systems via bridging, or using private intermediaries. She advocates for direct issuance to fully harness the benefits of tokenisation.
The Eurosystem’s projects, such as Project Appia and Project Pontes, are exploring architectures for a unified or interconnected ledger system, aiming to bring native tokenisation and programmability to Europe’s financial infrastructure. These initiatives will enable real-time settlement, smart contracts, and enhanced operational flexibility.
Design considerations include interoperability, governance, resilience, and innovation. A single unified ledger maximises programmability but poses governance challenges, whereas multiple ledgers can distribute risk and foster competition.
In conclusion, tokenisation can transform wholesale markets, especially in Europe, but requires central banks to adopt on-chain solutions to ensure safety, stability, and efficiency. The ECB’s ongoing projects are paving the way for a tokenised financial system.
