Money in transition: digitalisation and innovation in payments

Christine Lagarde, President of the European Central Bank (ECB), delivered the opening speech at the ECB conference titled “Money in transition: digitalisation and innovation in payments”.

She reflected on the historical context of European account settlement, from the Champagne fairs eight centuries ago to the modern euro system, emphasizing ongoing challenges and opportunities.

Lagarde highlighted two main challenges: technological changes, especially tokenisation, and geopolitical shifts affecting financial infrastructure ownership. She described these as opportunities to address market fragmentation and increase competition in retail payments.

The ECB is pursuing a comprehensive strategy, starting with wholesale markets. Currently, cross-border transactions involve multiple record-keepers, increasing costs. Tokenisation on shared ledgers can streamline ownership and settlement, but require credible, risk-free assets. The ECB’s Pontes project will settle tokenised transactions in central bank money, and the Appia project aims to develop a single European market for tokenised finance.

In retail payments, the digital euro aims to preserve access to central bank money and address dependence on non-European card schemes. Its legal tender status ensures acceptance across the Union, and open technical standards enable competition among providers.

Cross-border payments remain slow and costly. The ECB is working to interlink instant payment systems, including connections to India’s UPI, South-East Asia’s Nexus, and Switzerland’s SIC IP, to enable fast, low-cost transfers globally.

The euro’s international role is limited by market fragmentation. A deep, integrated market based on trusted public money can enhance its global use. The ECB emphasizes the need for shared standards and legal frameworks to support digital assets, avoiding fragmentation and fostering innovation.

Lagarde concluded by recalling Europe’s historical account settlement and emphasizing the importance of extending the single currency into the tokenised age, ensuring the future of a unified European financial system.