ECB's Schnabel: Central Bank Money Must Go
ECB Executive Board member Isabel Schnabel argued that central banks must issue reserves directly on distributed ledgers to support tokenised finance.
The European Central Bank must issue its money directly onto distributed ledgers to support the growth of tokenised finance. This is according to Isabel Schnabel, a Member of the ECB's Executive Board, who spoke at the Jackson Hole Economic Policy Symposium on August 28, 2026.
Schnabel was responding to a paper by Darrell Duffie titled "Tokenized finance and the perimeter of central banking." She argued that tokenisation, which represents financial assets as digital tokens on programmable platforms, presents a major opportunity for the euro area. It could foster financial integration by allowing assets and settlement to operate on common infrastructures.
However, she noted Duffie's finding that the take-off of tokenised finance has been partly held back by the lack of a safe settlement asset within such environments.
Tokenisation Offers Atomicity and Programmability
Schnabel outlined two core benefits of tokenisation for wholesale finance: atomicity and programmability. Atomicity means both legs of a transaction settle together or not at all, eliminating settlement risk. Programmability allows settlement to be made conditional on rules executed automatically.
She noted these benefits are not unique to tokenisation. The Eurosystem's TARGET2-Securities platform already provides delivery-versus-payment for domestic securities trades. It also uses auto-collateralisation to automatically generate repos for intraday credit.
Tokenisation makes such programmability general-purpose. Market participants can define conditions spanning an instrument's entire lifecycle. Schnabel used repo transactions as an example. On a programmable platform, processes like collateral substitution and margin management can be automated through smart contracts.
This reduces manual intervention. It also speeds up settlement.
The benefits are largest in cross-border transactions and across time zones. Currently, collateral often has to be pre-positioned overnight, requiring significant prefunding. Programmable settlement could largely eliminate this friction.
Tokenisation also affects market participation. On the supply side, it can lower barriers for infrastructure providers and firms. France's "Lightning Stock Exchange" was cited as an example of a tokenised venue tailored to smaller companies.
On the demand side, it enables fractional ownership of otherwise indivisible assets like gold bars or real estate. Schnabel argued this reduces barriers for investors too.
For the euro area, tokenisation offers a route to an ecosystem integrated by design. It aligns with the objectives of the European savings and investments union. Europe's financial infrastructure remains fragmented along national lines, creating frictions.
Why Stablecoins Fall Short
A trusted settlement asset is a prerequisite for unlocking these benefits. Schnabel explained that modern fiat systems are built on a two-tier structure. Central banks issue the ultimate settlement asset for wholesale transactions. Commercial banks issue money-like claims that circulate at par.
This architecture solves coordination, trust and stability problems. During the free banking era in the United States, state-chartered banks issued their own notes. These notes sometimes traded at substantial discounts, especially if issued by distant, less-trusted banks.
Today, banks settle using central bank reserves, which carry no credit or liquidity risk. Tokenisation changes the technology but not the need for an institutional framework preserving par convertibility and stability.
Duffie's paper discusses stablecoins and central bank reserves as potential settlement assets. Schnabel argued central bank reserves remain superior. A settlement asset must be safe and its supply must expand elastically in response to liquidity demand.
She conceded a stablecoin could be designed to be almost perfectly safe, with zero credit and duration risk. Darrell Duffie's proposal of a floating-rate government security-backed coin illustrates this principle.
But a stablecoin issuer cannot meet the second criterion. It lacks the independent capacity to expand liquidity elastically, especially during periods of stress when funding markets strain and confidence shifts abruptly. Ensuring an elastic currency supply was a central historical concern that led to the creation of central banking.
The Case for Central Banks Going On-Chain
Schnabel concluded that stablecoins are dominated by settlement solutions based on central bank money. This reflects the central bank's unique ability to provide liquidity elastically.
She then addressed how central bank money should be provided. Should it remain outside distributed ledger platforms, relying on private intermediaries or bridges? Or should central bank reserves become native programmable assets on-chain?
Schnabel's suggestion was clear. Central banks should embrace distributed ledger technology and go on-chain themselves. Bringing central bank money on-chain would preserve its role as the foundation of settlement.
It would also let central banks leverage programmability to modernise monetary policy implementation, collateral management and liquidity provision. This could foster financial stability.
The final question was how central banks should go on-chain. Should reserves be integrated with tokenised assets on shared ledgers? Or should they be issued on a central bank-operated ledger that connects to other platforms?
Schnabel argued the answer depends on a trade-off. A more unified infrastructure via a single ledger or a small number of large ledgers reduces interoperability issues and fragmentation. But it also creates challenges for resilience, innovation and governance.
The speech laid out a clear vision for the ECB's potential role in a tokenised financial future, grounded in the historical necessity of central bank money.
