Isabel Schnabel: Central banks on-chain
SPEECH DIGEST
NEUTRAL high confidence · 30.3k characters readSchnabel's Jackson Hole discussion of Duffie's tokenisation paper. Zero monetary policy content: this is plumbing and infrastructure strategy. The substance is her push for the Eurosystem to issue natively tokenised reserves on its own DLT platform rather than relying on bridges or private omnibus-account wrappers, plus operational detail on Project Pontes going live next month.
What’s new: Nothing for rates. The genuinely new bits are operational: Pontes launches next month with legal settlement finality still anchored in TARGET2 but eventually migrating to the Eurosystem DLT platform, with smart contracts and 24/7 operations as post-launch additions. Her strong personal preference for native tokenised reserves over omnibus/bridge models, and her view that a unified ledger leaves little role for private stablecoins in domestic payments, is a sharpening of tone rather than new ECB policy. Project Appia architecture choices remain explicitly unresolved.
KEY FINDINGS
- Pontes goes live next month with cash-leg settlement finality still in TARGET2, moving to the Eurosystem DLT platform later; smart contracts and 24/7 operation come after initial launch. Concrete timeline for euro wholesale DLT settlement, relevant to repo and collateral plumbing rather than to front-end pricing.
- Stablecoins are framed as complements, not substitutes, because issuers cannot expand liquidity elastically in stress; and under a unified ledger she says it becomes difficult to identify a compelling role for new forms of private money for domestic payments. Mildly negative signal for euro-denominated stablecoin business models and supportive of tokenised deposit projects at banks.
- She flags that tokenisation may structurally raise reserve demand: automated margin calls can force procyclical asset sales, less nettable payments raise intraday liquidity needs, and fragmentation across ledgers could raise required reserves. Long-run argument for a larger structural balance sheet and richer liquidity facilities, though with no near-term implementation implication.
- The architecture question is left open: single unified ledger versus Eurosystem-operated ledger versus multiple interconnected ledgers, with her leaning that well-designed interoperability may preserve most benefits and weaken the case for one platform. No decision for infrastructure incumbents such as Euroclear or Clearstream to trade off yet.
FROM THE DOCUMENT
Here I will suggest that central banks should embrace DLT and go on-chain themselves.
Stablecoins are best understood as complements to central bank money, not substitutes for it.
While, at the launch next month, legal settlement finality for the cash leg will still be anchored in the TARGET2 system, settlement finality will ultimately be on the Eurosystem DLT platform itself.
Ultimately, it remains an open question which architecture is best suited to maximise the benefits of tokenisation.
It is a great pleasure to discuss Darrell Duffie’s paper “Tokenized finance and the perimeter of central banking” at this year’s Jackson Hole Economic Policy Symposium. [1] Tokenisation in wholesale finance has emerged as one of the most promising applications of distributed ledger technology (DLT), allowing financial assets and money to be represented as digital tokens on programmable platforms. The potential benefits of tokenisation are substantial. This is particularly true for the euro area, as tokenisation presents an opportunity to foster integration by enabling assets and settlement to operate on common infrastructures. However, as Darrell argues, the take-off of tokenised finance has so far partly been held back by the lack of a safe settlement asset. His paper provides an excellent overview of where central banks stand in filling this gap.