Schnabel urges central banks to put native reserves on-chain
European Central Bank Executive Board member Isabel Schnabel argued that central banks must issue programmable reserves natively on distributed ledgers. Speaking at the Jackson Hole symposium, she rejected stablecoins as viable settlement substitutes due to their inelastic supply.
Beyond private proxies and bridges
Central banks must natively embrace distributed ledger technology rather than relying on private omnibus accounts or off-chain bridging arrangements, Schnabel argued at the Jackson Hole symposium.
While private proxies depend entirely on intermediary soundness and risk fragmenting liquidity, native tokenisation allows central banks to modernize monetary policy operations.
Using smart contracts, central banks can automate repo transactions, implement dynamic margin calls, and adjust collateral requirements in real time.
Schnabel noted that such programmability is vital as financial velocity accelerates, enabling monetary authorities to supply liquidity faster during periods of market stress.
The Eurosystem roadmap
Stablecoins cannot substitute for central bank money because private issuers lack the capacity to elastically expand liquidity during financial panics.
In the euro area, tokenisation offers a way to overcome fragmented national financial infrastructures.
The Eurosystem will launch Project Pontes next month, connecting TARGET Services to distributed platforms before adding native DLT settlement and smart contract capabilities.
Meanwhile, Project Appia evaluates whether Europe should pursue a single unified ledger or an interoperable network of specialized platforms.
Defending the public monetary anchor
Schnabel rightly recognizes that central banks cannot surrender programmable finance to private stablecoin issuers.
Yet the Eurosystem clearly understates the massive operational liabilities and governance risks of managing smart contracts directly.
Going on-chain protects the public anchor but opens unprecedented technical attack surfaces.
Source: Isabel Schnabel: Central banks on-chain
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