ECB Outlines Three Models for Central Bank Money Onchain

The European Central Bank (ECB) has outlined three models for putting central bank money onchain as tokenization changes the infrastructure used to settle financial transactions. According to ECB Executive Board member Isabel Schnabel, these approaches would either tokenize central bank reserves directly, connect existing real-time gross settlement infrastructure to distributed ledger technology (DLT) platforms, or use a private intermediary to issue tokens backed by central bank reserves.

The first model involves the central bank issuing reserves directly on a programmable platform, making the reserves natively tokenized. The second model retains the existing real-time gross settlement system and connects it to a programmable DLT platform through an interoperability layer, with reserves remaining non-tokenized.

The third model would allow a private intermediary to tokenize reserves held at the central bank and issue settlement tokens fully backed by those reserves. Those tokens would remain private claims rather than direct claims on the central bank.

The ECB's presentation links these models to potential benefits of tokenization, including programmability and atomicity. Programmability allows settlement to depend on rules that execute automatically, while atomicity allows different legs of a transaction to settle together or not at all.