Tokenisation offers efficiency, poses risks to monetary policy
Piero Cipollone, Member of the Executive Board of the European Central Bank, outlined how central banks can enhance the efficiency of the financial system through tokenisation. He emphasized the need to preserve monetary policy effectiveness, financial stability, and monetary sovereignty amidst these innovations.
Tokenisation: A system-wide paradigm shift
Piero Cipollone highlighted tokenisation and distributed ledger technology (DLT) as general-purpose technologies capable of transforming the financial system's fundamental architecture.
Unlike incremental innovations, tokenisation allows the entire transaction lifecycle – issuance, trading, settlement, and custody – to occur within a single, 24/7 digital environment.
This promises to simplify access to finance, enhance services, and reduce costs.
However, Cipollone noted that these gains are conditional on complementary market components adopting the technology simultaneously, creating a significant coordination problem.
No single entity can transform the system alone, leading to disincentives for unilateral moves due to certain costs and uncertain payoffs.
This structural challenge means that while rational actors may experiment, a broad, integrated market requires a concerted shift.
Anchoring digital finance with central bank money
Cipollone emphasized the central bank's crucial role in catalysing the market by providing tokenised central bank money.
This is necessary to offer a risk-free settlement asset in tokenised markets, ensuring finality that private instruments cannot provide.
Without it, every transaction would carry credit risk, hindering scalability.
From September 2026, the Eurosystem will offer tokenised central bank money settlement for DLT-based transactions through its Pontes project.
DLT-based assets have also been accepted as collateral for Eurosystem credit operations since March.
This proactive stance aims to foster an integrated and competitive tokenised ecosystem, preventing fragmentation and ensuring broad productivity gains.
Private money's systemic vulnerabilities
Relying solely on private digital assets risks fragmenting liquidity and weakening monetary policy transmission by destabilizing bank deposits.
Rapid run potential of private payments, amplified digitally, poses a clear threat to financial stability.
Widespread use of foreign stablecoins could challenge monetary sovereignty, eroding central bank control.