TheBlock
The European Central Bank is examining three ways to connect central bank money to onchain markets, Executive Board member Isabel Schnabel said at the Bank of England’s Future of Money conference. The options are reserves issued directly on a programmable platform, a link between the ECB’s existing settlement system and DLT platforms, or private settlement tokens fully backed by reserves held at the central bank. The approaches differ in who issues the claim and whether reserves themselves are tokenized.
Why it matters
Schnabel said an onchain monetary system could retain today’s two-tier structure: central bank money at the core of settlement, with commercial banks providing money and financial services to customers. That would allow tokenized securities and deposits, as well as stablecoins, to operate alongside central bank money on DLT infrastructure. Tokenization could also make transactions atomic, so an asset and its payment transfer together.
Under the interoperability option, the ECB’s real-time gross settlement system would remain in place. A layer linked by hash would connect it to DLT platforms without tokenizing the reserves. Under the third option, the settlement tokens would be private claims backed by central bank reserves, not claims issued directly by the ECB.
Market impact
The ECB is moving from architectural questions toward practical tests. Its Pontes project launched last month to provide tokenized central bank money for DLT-based transactions, while Appia is examining unified-ledger, interconnected-network and multiple-shared-ledger designs. Schnabel did not announce a choice among the three models.
Interest among financial institutions is rising. In a Lloyds survey of senior decision-makers at large UK financial institutions, 71% expected tokenization to reshape financial services. Faster payments and settlement were cited as a potential benefit by 60%, and collateral and liquidity management by 41%. The ECB’s eventual architecture will matter to firms building those workflows, but no market-price reaction was cited.
Frequently asked questions
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How would the ECB connect its existing settlement system to DLT platforms?
One model would keep the ECB’s real-time gross settlement system in place and connect it to DLT platforms through an interoperability layer linked by hash. The reserves would not be tokenized.
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Would all 3 models give holders a direct claim on the central bank?
No. In the third model, settlement tokens would be private claims fully backed by reserves held at the central bank, rather than claims issued directly by the ECB.
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What role would commercial banks have in an onchain monetary system?
Schnabel said the existing two-tier structure could remain: central bank money would sit at the core of settlement, while commercial banks would continue providing money and financial services to customers.
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What are Pontes and Appia testing?
Pontes launched to provide tokenized central bank money for DLT-based transactions. Appia is examining unified-ledger, interconnected-network and multiple-shared-ledger designs.
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What benefits do UK financial institutions see in tokenization?
In a Lloyds survey, 60% of respondents cited faster payments and settlement as a potential benefit, while 41% cited collateral and liquidity management.
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