Cipollone: Digital assets need central bank money
ECB Executive Board Member Piero Cipollone outlined the central bank's strategy for digital assets and tokenisation. He emphasized the need for central bank money to underpin efficiency gains while preserving monetary policy and financial stability.
Central bank money as settlement anchor
Cipollone highlighted two pivotal central bank contributions to tokenisation: providing central bank money and accepting DLT-based assets as collateral.
Tokenised central bank money is indispensable for offering a risk-free settlement asset in tokenised markets, providing the finality and trust that private instruments cannot.
Without this public anchor, every transaction would carry credit risk, significantly hindering market expansion and scalability.
The Eurosystem's proactive strategy includes the Pontes project, launching in September, which will offer tokenised central bank money settlement for DLT-based transactions, establishing a safe and trusted common anchor for Europe's digital finance ecosystem.
Furthermore, since the end of March, the Eurosystem has accepted marketable DLT-based assets in central securities depositories as eligible collateral for credit operations, and is actively exploring ways to expand eligibility to other DLT-issued assets.
Beyond these direct actions, the central bank also acts as a catalyst, fostering an integrated and competitive tokenised ecosystem through initiatives like the Appia roadmap, published in March, which aims to prevent fragmentation and ensure broad distribution of tokenisation's benefits.
Tokenisation's transformative potential
Tokenisation, underpinned by distributed ledger technology (DLT), is identified as a general-purpose technology capable of fundamentally reshaping the financial system, rather than merely improving existing parts.
By representing assets as digital tokens on DLT networks, it allows the entire transaction lifecycle – from issuance to custody – to occur within a single, 24/7 digital environment, promising enhanced financial services and reduced costs.
However, the realisation of these system-wide efficiency gains is conditional on the simultaneous adoption of this technology across all complementary market components, creating a significant coordination problem.
This disincentivizes unilateral moves due to uncertain pay-offs.
Furthermore, the design choices for the DLT ecosystem's architecture, whether a single shared network or multiple interconnected ones, are critical.
Common standards and non-discriminatory access are crucial to ensure market integration, avoid liquidity fragmentation, and foster competition and innovation, ultimately reducing costs for issuers and investors.
Risks without a public anchor
Without tokenised central bank money, private settlement assets like stablecoins could profoundly alter monetary policy transmission by attracting bank deposits, increasing volatility, and affecting credit provision.
This also amplifies financial stability risks, as rapid digital runs on private assets could disrupt markets, compressing traditional dynamics into hours.
Furthermore, widespread adoption of foreign currency-denominated digital assets threatens monetary sovereignty by undermining domestic control over money supply and interest rates, potentially leading to currency substitution.