ECB Official Calls for Central Banks to Bring Reserves On-Chain

ECB Executive Board member Isabel Schnabel has called on central banks to move their reserves onto distributed ledgers, citing the potential benefits of tokenization in reshaping financial markets. In a speech at the Jackson Hole Economic Policy Symposium, Schnabel emphasized that tokenization could make financial transactions faster, safer, and more programmable by allowing assets and money to exist on programmable platforms.

Schnabel highlighted the advantages of atomic settlement, which can eliminate settlement risk, and programmability, which can automate processes such as collateral substitution, margin management, and repo settlement. She noted that these gains are particularly significant for Europe, where tokenization could help overcome the fragmentation of the euro area's financial infrastructure.

Schnabel rejected the idea that private stablecoins could replace central bank money at the core of tokenized finance, arguing that a settlement asset needs to be both safe and elastically supplied. She emphasized that central banks should tokenize their reserves directly, allowing them to become programmable assets and enabling smart contracts to execute repo transactions atomically.

The ECB is currently exploring these issues through Project Appia and Project Pontes, with the latter initially synchronizing TARGET Services with DLT platforms but ultimately designed to support settlement finality on a Eurosystem-operated DLT platform. Schnabel acknowledged that policymakers face a trade-off between building a unified ledger or an ecosystem of interconnected platforms.