ECB’s Schnabel: Central bank money must move onchain

Isabel Schnabel, a member of the European Central Bank’s Executive Board, argued central bank money should be able to move onchain so public money can be used directly in tokenised financial markets and distributed ledger technology systems. She made the comments in recent public remarks.

Schnabel said, “Central bank money should be usable directly in tokenised markets,” and explained that allowing public liabilities to operate on distributed ledgers would reduce reliance on privately issued tokens for settlement.

She described onchain central bank money as a way to achieve settlement finality and to lower credit and liquidity risks that can arise when private money is used to settle transactions on DLT platforms. Schnabel emphasized that tokenised markets need settlement instruments that are legally safe and widely accepted, and that central bank liabilities could meet those requirements if available in token form.

Schnabel outlined possible models, including tokenised central bank reserves for wholesale markets and a retail central bank digital currency compatible with DLT rails. She discussed the role of intermediaries such as commercial banks and said interoperability mechanisms will be needed to connect legacy payment systems with new token-based platforms.

She identified operational and regulatory barriers that must be addressed before central bank money can circulate on distributed ledgers. Those include legal certainty for onchain settlement, guaranteeing transaction finality across different platforms, protecting data privacy, and meeting anti-money-laundering and know-your-customer obligations. Schnabel called for coordinated work on technical standards, governance arrangements and legal frameworks.

Schnabel warned private alternatives could expand if public money cannot be used directly onchain, raising questions about monetary sovereignty and systemic risk. She pointed to growing interest in tokenised asset proposals and private payment tokens as drivers of demand for central bank instruments that are compatible with DLT.

The comments build on the ECB’s ongoing exploration of a digital euro and broader central bank interest in central bank digital currencies and tokenisation. Schnabel said pilot projects and experimentation will be necessary to test technical designs and to assess implications for monetary policy implementation and central bank balance sheets.

Tokenisation refers to representing assets or claims digitally on distributed ledgers, allowing trading and settlement to take place in token form. Central banks and supervisors across jurisdictions are studying technical options, legal changes and supervisory frameworks to enable public money to function in DLT environments.