By David Barwick – FRANKFURT (Econostream) – European Central Bank Executive Board member Piero Cipollone on Wednesday said tokenization could sharply improve the efficiency of finance, but only if central banks help provide the settlement asset, collateral framework, and common standards needed for the new ecosystem to scale.
Speaking at a symposium in Washington, Cipollone said tokenization and distributed ledger technology had the potential to change the architecture of finance rather than merely make existing processes faster.
By bringing issuance, trading, settlement, and custody into “a single digital environment” and creating “a single, shared source of truth,” tokenization could simplify access to finance, improve financial services, and reduce costs, he said.
At the same time, he cautioned that such gains were not assured. It was “possible but by no means certain” that tokenization would break with the historical pattern in which technological advances improved markets without materially reducing the aggregate cost of connecting borrowers and savers, he said.
Cipollone argued that tokenized central bank money was necessary to provide a risk-free settlement asset in tokenized markets and said tokenized assets also needed to be usable as collateral in central bank operations.
Without such a public settlement anchor, every transaction in the new ecosystem would otherwise have to be settled using an instrument that carried credit risk and lacked the finality of central bank money, he said.
He said the Eurosystem’s 2024 exploratory work, which involved 50 trials across nine jurisdictions and transactions worth about €1.6 billion, had shown that central bank money could be used to settle DLT-based transactions.
From September, the Eurosystem will offer tokenized central bank money settlement for DLT-based transactions as part of its Pontes project, he said.
Cipollone also said that since the end of March the Eurosystem had accepted marketable assets issued in central securities depositories using DLT as eligible collateral in its credit operations, adding that work was underway to explore expanding eligibility further.
He warned that tokenized finance could otherwise develop into a fragmented system of incompatible networks and standards that would divide liquidity, curb competition, and hinder innovation.
Common standards and equal, non-discriminatory access would be essential to avoid “walled gardens” and bring down costs for issuers and investors, he said.
Cipollone said the Eurosystem’s Appia roadmap, published in March, was intended to produce by 2028 a blueprint for a European tokenized financial ecosystem covering areas including interoperability, monetary policy implementation, cross-border connectivity, and legal and regulatory foundations.
“We have a window of opportunity to ensure the foundational architecture of tokenized finance encourages an integrated and competitive ecosystem – anchored in central bank money – that truly improves the way in which the economy is financed,” he said.
