Central banks on-chain

The European Central Bank highlighted tokenisation in wholesale finance as a promising use of distributed ledger technology, enabling financial assets and money to be represented as programmable digital tokens. It noted that tokenisation could foster integration in the euro area by allowing assets and settlement to operate on shared infrastructures, while also identifying the lack of a safe settlement asset as a key barrier to adoption. The ECB explored whether stablecoins could replace central bank money in settlement, concluding that central bank money remains superior due to its unique liquidity provision capabilities and role as the foundation of safe settlement.

The ECB argued that central banks should embrace distributed ledger technology by bringing central bank money on-chain, preserving its settlement role while enabling programmability for monetary policy, collateral management and liquidity provision. It suggested that on-chain central bank reserves could modernise financial infrastructure and enhance stability, addressing fragmentation in euro area markets where national systems limit scale and cross-border flows.

Tokenisation offers two core benefits for wholesale finance: atomicity, which ensures transactions settle together or not at all, and programmability, which automates settlement through predefined rules executed automatically. The ECB cited existing systems like TARGET2-Securities, which already achieves delivery-versus-payment for securities trades, as a model for how programmability can reduce manual processes and settlement risk, particularly in cross-border transactions where operational frictions such as prefunding collateral are significant.

The ECB also noted that tokenisation lowers barriers to entry for infrastructure providers, firms and investors by enabling fractional ownership and supporting new trading venues tailored to smaller companies. It highlighted France’s Lightning Stock Exchange as an example of how tokenisation can reduce costs for operating small-cap public markets, while emphasising that Europe’s fragmented financial infrastructure along national lines limits competition and cross-border capital flows.