The European Central Bank is examining three possible ways to use central bank money in distributed ledger-based financial markets, according to a presentation by ECB Executive Board member Isabel Schnabel at the Bank of England’s Future of Money conference.
Schnabel said the work is part of the ECB’s broader effort to develop its own distributed ledger technology infrastructure, including the Pontes and Appia projects. The stated aim is to keep central bank money at the center of settlement as tokenized assets, deposits and stablecoins increasingly move onchain.
Three routes under review
In the first model described by Schnabel, the central bank would issue reserves directly on a programmable platform. That would place central bank money itself on infrastructure designed for automated and onchain transactions.
A second model would keep the ECB’s existing real-time gross settlement system in place while connecting it to distributed ledger platforms through an interoperability layer. In that setup, reserves would not be tokenized. Instead, the traditional settlement system and DLT-based platforms would be linked by a hash.
The third option would involve tokenizing reserves held at the central bank and using them to back settlement tokens on a one-for-one basis. Schnabel said those instruments would amount to private claims fully backed by central bank reserves, rather than direct claims issued by the central bank itself.
Preserving the two-tier monetary structure
Schnabel said an onchain monetary system could still preserve the longstanding two-tier structure of modern finance. Under that model, central bank money would continue to serve as the foundation for settlement, while commercial banks would keep their role in providing money and financial services to end customers.
That framework is meant to adapt existing monetary arrangements to tokenized markets rather than replace them. In practice, it would place central bank money on distributed ledger infrastructure alongside tokenized financial instruments and other digital forms of value moving across the same systems.
Why the ECB is focusing on DLT settlement
The presentation framed the ECB’s work as a response to the growth of tokenized financial assets on distributed ledgers. Schnabel referred to a future environment in which securities, deposits and stablecoins may all circulate onchain, raising the question of how settlement in central bank money can remain available within that ecosystem.
The three models outlined by the ECB differ in how directly the central bank would participate in that infrastructure. One route would put reserves natively on programmable rails, another would bridge today’s settlement system into DLT markets, and a third would allow privately issued settlement tokens to function with reserve backing held at the central bank.
Next stage of the ECB’s work
The ECB has not announced that it has chosen one of the three models. For now, Schnabel’s presentation sets out the main design paths being considered as the central bank continues work on distributed ledger infrastructure through projects such as Pontes and Appia.
The next confirmed step is continued development and evaluation of those DLT initiatives as the ECB examines how central bank money could support settlement in increasingly tokenized financial markets without abandoning the current two-tier structure.
Source: www.theblock.co