ECB Executive Board member Isabel Schnabel has argued that central bank money must migrate natively onto distributed ledger technology rails to unlock the full benefits of Tokenization and protect financial stability.
In her latest presentation titled “Central Banks On-Chain,” Schnabel evaluated technical models such as native programmable reserves, interoperability bridges, and tokenised reserve backing, noting that direct issuance on DLT is favored to keep policy operations on-chain. Using diagrammatic expressions, Schnabel explained that Tokenization transforms wholesale financial markets by delivering three core structural improvements.
The ECB executive argued that Tokenization allows faster settlement through instantaneous atomic execution and round-the-clock global mobility. She added that it enables safer settlement and eliminates principal and counterparty risk by using risk-free central bank money. It also facilitates smarter settlement and introduces programmable automation and dynamic collateral management via smart contracts.
Other benefits of Tokenization highlighted by Schnabel include fostering the integration of financial infrastructures in Europe. She believes the technology provides a historic opportunity to overcome the structural fragmentation of the Eurozone’s financial architecture. According to Schnabel, Europe can bypass legacy national boundaries and align with the European Savings and Investments Union by migrating wholesale assets and central bank money onto shared or interoperable blockchain infrastructures.
The ECB board member explained that modern fiat monetary systems rely on a division of labor between public and private institutions to maintain trust, stability, and efficiency, highlighting a two-tier structure that includes the public base and a private-facing layer. Meanwhile, she noted that central banks can expand liquidity elastically, showing they can expand or contract the money supply instantly and infinitely in response to shifting market demands.
(adsbygoogle = window.adsbygoogle || []).push({});Schnabel touched on other areas of the Eurozone financial sector that could benefit from Tokenization, including the ECB’s aim to preserve the anchor role of central bank money in a digitalized world, and the apex bank’s potential to modernise monetary policy implementation by going on-chain.
Shen cited Project Pontes, noting that it functions as a unified dual-settlement architecture rather than a basic synchronization link. Schnabel also argued that tokenised systems can replicate the two-tier structure if central bank money is provided on-chain, citing the Eurosystem’s project Appia, which explores a range of tokenised architectures.
