ECB Executive Board member Isabel Schnabel said central banks should move their money onto distributed ledgers as tokenization reshapes financial markets, arguing that central bank reserves remain superior to stablecoins as the ultimate settlement asset.

At the Jackson Hole Economic Policy Symposium, Schnabel said tokenization could make financial transactions faster, safer and more programmable by allowing assets and money to exist on programmable platforms. She highlighted atomic settlement, which can eliminate settlement risk, and programmability, which can automate processes such as collateral substitution, margin management and repo settlement.

The potential gains are particularly significant for Europe, she said, because tokenization could help overcome the fragmentation of the euro areas financial infrastructure. A common digital environment could reduce the operational costs of cross-border transactions, broaden access to financial markets and improve the mobility of collateral.

But Schnabel rejected the idea that private stablecoins could replace central bank money at the core of tokenized finance. She said a settlement asset needs to be both safe and elastically supplied. Even a stablecoin backed by government securities could potentially meet the first requirement, but its issuer would not have the independent capacity to expand liquidity rapidly during periods of financial stress.

That makes central bank reserves uniquely suited to serve as the foundation of tokenized markets, according to Schnabel. She said central banks should go beyond simply connecting traditional payment systems to DLT networks and instead tokenize reserves directly, allowing them to become programmable assets.

Such a system could transform how monetary policy is implemented. Smart contracts could execute repo transactions atomically, automate collateral requirements and substitutions, and allow central banks to adjust operational parameters more quickly. Schnabel warned that tokenization could also increase intraday liquidity needs through faster settlement and automated margin calls, making flexible liquidity provision even more important.

The ECB is exploring these issues through Project Appia and Project Pontes. Schnabel said Pontes will initially synchronize TARGET Services with DLT platforms but is designed to ultimately support settlement finality on a Eurosystem-operated DLT platform, including smart-contract functionality and eventually 24/7 operations.

Schnabel said policymakers still face a trade-off over whether to build a unified ledger or an ecosystem of interconnected platforms. A single ledger could maximize atomicity and interoperability but raise concerns over governance, resilience and concentration. Multiple ledgers could distribute risks and encourage innovation but increase the potential for fragmented liquidity.

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