The European Central Bank is examining three different ways to bring central bank money onto distributed ledger technology as tokenized financial markets expand. ECB Executive Board member Isabel Schnabel outlined the models on October 1 at the Bank of England’s Future of Money conference in London, setting out possible architectures for keeping central bank money at the foundation of onchain financial markets.
The discussion comes shortly after the Eurosystem launched Pontes, its first operational solution for settling wholesale tokenized transactions in central bank money. The initiative went live on September 21 and forms part of a broader strategy that also includes Appia, a longer-term project examining how a European tokenized financial ecosystem could be structured.
KEY TAKEAWAYS
- The ECB is considering direct issuance, an interoperability bridge and privately issued settlement tokens backed by central bank reserves.
- The models are designed to preserve the existing two-tier monetary system, with commercial banks continuing to provide money and financial services to customers.
- Pontes is already live, connecting DLT platforms with Eurosystem’s existing settlement infrastructure.
- Appia is studying longer-term architectures for tokenized financial markets, with a blueprint targeted for 2028.
- Tokenized deposits, stablecoins and tokenized securities could operate alongside central bank money on digital financial infrastructure.
THREE POSSIBLE ROUTES FOR CENTRAL BANK MONEY
Schnabel’s first model would involve the ECB issuing reserves directly on a programmable DLT platform. Under this structure, central bank reserves would be tokenized from the beginning and could move on the same infrastructure as other digital assets. The second model would retain the existing real-time gross settlement system while connecting it to DLT networks through an interoperability layer. Central bank reserves would remain in the existing settlement infrastructure rather than becoming tokens themselves. The payment and asset-transfer systems could instead be synchronized using mechanisms such as triggers or cryptographic links.
The third approach would leave reserves at the central bank but allow a private intermediary to issue settlement tokens backed by those reserves. The tokens would be private claims rather than direct claims on the central bank. These approaches differ in where the central bank money sits and who controls the onchain settlement instrument. Schnabel’s presentation also framed the issue around maintaining the role of central bank money as the trusted settlement asset while allowing commercial forms of money to operate in tokenized markets.
PONTES PUTS THE BRIDGE APPROACH INTO PRACTICE
The ECB is already testing this transition through Pontes. The system connects market DLT platforms with the Eurosystem’s TARGET Services, allowing wholesale transactions involving tokenized assets to settle in central bank money. The initial launch began with a core set of services, with the Eurosystem planning additional capabilities and longer operating hours over time. Full implementation is expected by 2028. An initial group of banks, financial institutions and DLT operators has already completed onboarding.
The ECB’s approach is also informed by earlier experiments. In 2024, the Eurosystem conducted exploratory work on DLT-based central bank money settlement, with participants highlighting the importance of access to a safe settlement asset as tokenized markets develop.
APPIA LOOKS BEYOND THE CURRENT INFRASTRUCTURE
While Pontes addresses immediate settlement needs, Appia is examining the longer-term structure of European tokenized finance. The project is considering different configurations, including a unified ledger and networks that remain separate but interoperable. The Eurosystem plans to produce a blueprint for the future ecosystem by 2028. The ECB is also looking at how tokenized financial assets can interact with central bank money without dismantling the two-tier banking system. Under that structure, commercial banks would continue supplying deposits and financial services, while central bank money would provide the settlement foundation.
That distinction also separates central bank money from private instruments such as stablecoins and tokenized deposits. These assets can operate within a tokenized financial system, but they represent private liabilities rather than money issued directly by the central bank. Interest from financial institutions is growing alongside the ECB’s work. A Lloyds Banking Group survey published October 2 found that 71% of senior decision-makers at the UK’s largest financial institutions expect tokenization to reshape financial services.
CONCLUSION
The ECB has not selected one of Schnabel’s three models as its final architecture. Instead, the presentation outlines the principal ways central bank money could interact with DLT-based financial markets while preserving the existing monetary structure.
Pontes gives the Eurosystem an operational starting point, while Appia is examining what a broader tokenized financial infrastructure could look like. The next phase will depend on practical experience, interoperability and the ability to combine programmable financial assets with the security and settlement role of central bank money.
