ECB discusses digital euro, tokenisation, and central banks’ role in digital finance

Piero Cipollone, Member of the Executive Board of the ECB, delivered a webcast speech discussing the evolving role of central banks in the digital age.

He highlighted the shift towards digital payments, the experimentation with distributed ledger technology (DLT), and the emergence of digital tokens. This transformation offers opportunities for more efficient payments and new financial products but also poses risks such as fragmentation and dependence on external infrastructures.

The ECB’s approach involves extending central bank money into the digital environment while preserving the two-tier monetary system. This includes preparing for a digital euro for retail payments and ensuring central bank money can settle tokenised transactions in wholesale markets through initiatives like Pontes and Appia.

The digital euro aims to provide a Europe-wide, interoperable, and secure digital payment solution, complementing cash and private solutions. It will be distributed by banks, not directly by the ECB, and will support acceptance across the euro area using established European standards.

Safeguards are in place to protect financial stability, including limits on holdings and mechanisms linking digital euro holdings to bank accounts. Recent analyses show these measures effectively contain deposit outflows and safeguard bank liquidity under various scenarios.

The legislative process for the digital euro is progressing, with potential issuance targeted for 2029 following legislative approval expected by the end of 2026. A pilot program is planned for late 2027 to test the infrastructure and user experience.

In wholesale markets, tokenisation can improve automation, settlement speed, and cost efficiency. The Eurosystem launched Pontes to enable settlement of tokenised assets in central bank money, with full implementation expected by mid-2028. The Appia project aims to create an integrated European digital finance ecosystem, with a blueprint expected in 2028.

These initiatives support the development of tokenised deposits and the coexistence of central bank and commercial bank money, ensuring interoperability and stability across the digital financial landscape.

In conclusion, the ECB is modernising public money and infrastructure to foster innovation, resilience, and competitiveness, ensuring that technological evolution preserves trust and stability in Europe’s monetary system.