Central banks on-chain and the future of tokenised finance

Isabel Schnabel, Member of the Executive Board of the ECB, delivered a speech at the Jackson Hole Economic Policy Symposium titled “Financial Innovation: Implications for Payments and Policy”.

She discussed Darrell Duffie’s paper on “Tokenized finance and the perimeter of central banking” and highlighted the emergence of tokenisation in wholesale finance as a promising application of distributed ledger technology (DLT).

Schnabel emphasized that tokenisation can foster integration within the euro area by enabling assets and settlement to operate on common infrastructures. She outlined three key questions regarding the role of central bank money in tokenised finance:

• Whether stablecoins could replace central bank money as a safe settlement asset.
• Whether central bank reserves should remain outside of DLT platforms or become native programmable assets.
• How central banks should implement on-chain solutions, either through issuing tokenised reserves directly, linking current systems, or via private intermediaries.

She explained that stablecoins are not substitutes for central bank money because they lack the elastic supply needed during periods of financial stress. Central bank reserves are essential for safe, stable settlement and monetary policy implementation.

Schnabel advocates for central banks to embrace DLT and go on-chain, which would enable more efficient monetary policy, collateral management, and liquidity provisioning through smart contracts. She discussed different architectural options, including unified or interconnected ledgers, and highlighted ongoing projects like Eurosystem’s Project Appia and Project Pontes, which aim to integrate tokenisation into the ECB’s infrastructure.

The speech also covered the importance of interoperability, governance, resilience, and avoiding fragmentation in designing on-chain systems. Schnabel concluded that tokenisation could significantly improve market efficiency and address infrastructure fragmentation in Europe, but requires central banks to provide a safe, scalable settlement asset by moving into on-chain solutions.

The ECB’s initiatives, including Pontes and Appia, are paving the way for Europe’s transition to a tokenised financial system.