ECB outlines three models for putting central bank money onchain

The European Central Bank is looking at three ways to bring central bank money onchain, Executive Board member Isabel Schnabel said on Thursday at the Bank of England’s Future of Money conference in London.

One option would have the central bank issue reserves directly on a programmable platform. In another, the ECB’s existing real-time gross settlement system would remain in place, with an interoperability layer connecting it to DLT platforms, according to Schnabel's presentation. The reserves would not themselves be tokenized, but the two systems would be linked by hash.

The third approach would tokenize reserves held at the central bank and issue settlement tokens fully backed by those reserves. Those tokens would be private claims, rather than claims issued directly by the central bank, per the presentation.

Schnabel also addressed how an onchain monetary system could retain the two-tier structure used today. Central bank money would remain at the core of settlement, while commercial banks would continue to provide money and financial services to customers.

That structure would put central bank money on DLT infrastructure alongside tokenized financial assets, including securities and deposits, as well as stablecoins.

UK financial institutions on tokenization

The ECB's framework comes as financial institutions increase their focus on tokenization. Some 71% of senior decision-makers at the UK’s largest financial institutions expect tokenization to reshape financial services, according to Lloyds’ 10th annual Financial Institutions Sentiment Survey shared with The Block.

Faster payments and settlement were cited as the biggest potential benefit by 60% of respondents, followed by collateral and liquidity management at 41%. Some 77% said investment in new and emerging technologies is a growth priority, up from 41% in 2025.

“The real opportunity is to make financial markets work faster, more efficiently and with greater flexibility for clients,” Rob Hale, co-head of global markets at Lloyds, said. He cited faster settlement, more efficient use of collateral, and better movement of liquidity as tangible benefits.

On ECB's part, Schnabel said tokenization can make financial transactions more programmable and atomic, allowing the transfer of an asset and its payment to occur together. Tokenized infrastructure could also allow financial assets and money to interact directly on the same or connected DLT networks.

The ECB has already begun putting that framework into practice. Its Pontes project launched last month to provide tokenized central bank money for DLT-based transactions, while its Appia project is examining different architectures for tokenized markets.

Appia is considering a unified ledger, interconnected networks, and multiple shared ledgers.