ECB Board Member Calls for Central Banks to Go Onchain

Key Takeaways

Schnabel wants the ECB to issue programmable reserves

European Central Bank Executive Board member Isabel Schnabel used her August 28 speech at the Jackson Hole Economic Policy Symposium to argue for a deeper central-bank role in tokenized finance.

“To reap the full benefits, central banks need to go on-chain too,” Schnabel said in the official ECB speech.

Commercial banks already hold digital reserve balances with central banks. Schnabel’s proposal changes where those balances can be used. She wants reserves available directly on programmable infrastructure, alongside the tokenized bonds, securities and collateral that banks may exchange there.

The proposal stays within wholesale finance. Consumers would receive no ECB blockchain wallets, and the plan creates no cryptocurrency that investors can buy. The retail digital euro is a separate project. The ECB has also made no decision to use a public or permissionless blockchain.

Schnabel’s concern begins with a practical mismatch. A financial asset can exist on a distributed ledger while the money used to purchase it remains inside conventional settlement infrastructure. Banks then have to coordinate two systems before the transaction is complete.

 A tokenized asset still needs final payment

Consider a bank buying a tokenized bond. Ownership of the bond moves on a distributed ledger, but its cash payment may pass through the Eurosystem’s existing TARGET services. Messages have to travel between the two systems, and the participants must confirm that both transfers succeeded.

Placing the bond and payment in one programmable environment allows both sides to settle together. The bond changes ownership when the money arrives. If either transfer fails, the complete transaction is cancelled. This is known as atomic settlement.

The cash used for that final payment must remain reliable during calm markets and periods of financial stress. Schnabel judges settlement money by its safety and its ability to expand when institutions urgently need liquidity.

A stablecoin issuer generally creates additional tokens after receiving new reserve assets. It cannot independently create central-bank reserves during a funding shortage. The ECB can supply reserves against eligible collateral when banks need additional liquidity.

Schnabel still sees room for regulated stablecoins in payments and digital financial services. Their role would sit inside a monetary system whose final settlement asset remains central-bank money.

Stablecoin growth can affect the conventional banking system as well. As we previously reported, large balances held in stablecoins could draw deposits away from European banks. Those deposits currently help finance mortgages, business loans and other forms of credit.

Programmability changes the speed of a repo transaction

Repo markets offer a useful example of how programmable reserves might work. In a repo, one institution receives cash and provides securities as collateral. The agreement later requires the cash to be repaid and the collateral returned.

The transaction may also involve margin calls and collateral substitutions. Several institutions currently exchange messages and update their records as those changes occur.

A smart contract could monitor the collateral, request additional securities when required and complete the return transfer at maturity. Keeping the cash and collateral in the same environment would remove several reconciliation steps.

Faster processing introduces a liquidity challenge. A sharp decline in the collateral’s value could trigger an immediate margin call. An institution unable to provide additional assets may have to sell other holdings, adding pressure to an already falling market.

Schnabel wants the ECB to respond at the same speed. Native programmable reserves could eventually allow the central bank to conduct repo operations, alter collateral requirements, substitute eligible securities and adjust remuneration rates within the settlement process. The speech describes possible functions; the ECB has approved no live facility offering all of them.

Pontes starts with the existing TARGET system

Project Pontes is the ECB’s first operational response to the gap between tokenized assets and conventional central-bank money. Its initial launch is scheduled for September 2026.

Pontes is designed to connect market-operated distributed ledgers with the Eurosystem’s TARGET services. Participants will be able to settle transactions involving tokenized assets in central-bank money without building a separate private settlement asset for every platform.

The first phase remains partly connected to today’s infrastructure. Legal settlement finality for the cash payment will initially stay in TARGET2. Pontes also includes a Eurosystem-operated distributed-ledger platform, where the ECB eventually plans to place settlement finality.

Smart-contract functionality and continuous 24/7 operations will arrive later. The initial rollout will test whether the connections work reliably and whether financial institutions have enough demand to use them regularly.

Transaction volumes will therefore deserve close attention. The number of participating institutions, the assets they settle and any operational failures will show whether Pontes is becoming usable market infrastructure.

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Europe’s permanent architecture remains open

Pontes addresses the immediate need for central-bank settlement. Project Appia is examining the system that may eventually replace or extend it. The ECB expects the project to produce a long-term blueprint by 2028.

One possibility would place central-bank reserves, commercial-bank money and financial assets on a unified European ledger. Another would keep reserves on a Eurosystem-operated ledger connected to private platforms. The ECB is also examining a network of interoperable ledgers hosting different assets.

A unified system would reduce the need to move liquidity between disconnected platforms. It would also concentrate critical infrastructure and software decisions in one place. The operator would need clear rules for admitting participants, approving upgrades and assigning responsibility when a smart contract fails.

Several connected networks could distribute operational risk and give private firms more room to develop competing services. That arrangement depends on reliable communication between platforms. Liquidity could become fragmented if reserves cannot reach the network where they are needed.

Confidentiality creates another difficulty. Some central-bank operations contain sensitive information that cannot be visible across a shared ledger. The ECB still needs enough access to monitor reserve balances, collateral and liquidity conditions.

The first test will be practical

The immediate question is whether banks and market operators use Pontes once it becomes available. A working connection with TARGET Services provides little value when transaction volumes remain small or participants continue using established settlement routes.

The results will inform Appia’s later decisions about governance, technology and the ECB’s operational role. They will also show whether institutions want central-bank money available directly beside tokenized assets.

Tokenized markets can process trades quickly. Their stability still depends on the money used at final settlement. Schnabel wants the ECB to supply that money inside the same programmable environment. Pontes will show whether Europe’s financial institutions are ready to use it.