Cipollone: Tokenisation needs central bank catalyst
Piero Cipollone, ECB Executive Board member, discussed the transformative potential of tokenisation and distributed ledger technology (DLT) in finance. He outlined the conditions necessary for DLT to deliver genuine efficiency gains, emphasizing the crucial role of central banks.
Rewiring finance through DLT
ECB Executive Board member Piero Cipollone highlighted tokenisation and distributed ledger technology (DLT) as a general-purpose technology with the potential to fundamentally transform finance, unlike previous innovations.
He noted that most past financial innovations, such as electronic trading and dematerialisation, merely made existing systems faster without altering their underlying architecture of separated institutional layers for trading, clearing, custody, and settlement.
Tokenisation, by contrast, allows the entire transaction lifecycle to occur within a single digital environment, providing a shared source of truth and enabling automation via smart contracts.
This promises to simplify access, enhance services, and reduce costs.
Cipollone pointed out that the aggregate unit cost of financial intermediation has remained stubbornly constant at around 2% of intermediated assets since the late 19th century, a pattern tokenisation could finally break.
Integrated markets, common standards
For tokenisation to deliver its promised gains, the entire financial system must embrace its new logic, requiring simultaneous adoption of complementary components.
This creates a significant coordination problem, as no single entity has an incentive to move first due to uncertain payoffs.
Cipollone drew parallels to the early electrification of factories, where broad productivity increases only materialised after a complete redesign of workflows.
He stressed the need for common standards and non-discriminatory access in a DLT ecosystem to prevent fragmentation, foster competition, and ensure market integration.
The historical "war of the currents" between Edison's DC and Westinghouse's AC serves as a cautionary tale against incompatible systems.
Central banks as system architects
Cipollone's speech highlights the ECB's proactive stance in shaping the future of tokenised finance, moving beyond mere observation to active participation.
By offering tokenised central bank money and setting standards through projects like Pontes and Appia, the ECB aims to prevent fragmentation and ensure broad economic benefits.
This approach positions central banks as essential catalysts for a truly efficient and integrated digital financial ecosystem, ensuring gains are broadly distributed.