Eurosystem extends central bank money to tokenized finance

The Eurosystem will enable central bank money to be used for settlement of tokenized assets on distributed ledger platforms across the euro area. Central-bank liabilities can be represented in a token-compatible form for trading and settlement of tokenized securities and other instruments.

The plan uses a phased approach beginning with pilot projects and technical links between existing TARGET services and tokenization platforms. Banks, market infrastructures and selected service providers will connect to interfaces that let central bank money be represented and transferred as tokens while preserving legal finality.

Under the arrangement, central bank money will remain the liability of national central banks and the European Central Bank. Where possible, trades will be settled on a delivery-versus-payment basis. The operational setup is intended to give tokenized transfers the same finality and credit standing as conventional central bank deposits while interoperating with private token wallets and distributed ledger networks.

Access in the initial phase is limited to regulated financial institutions and approved market infrastructures. Access rules are aligned with existing prudential requirements and payment-system safeguards. National central banks and market operators will run tests on resilience, cybersecurity and legal certainty before any wider rollout.

Technical work includes building interfaces that translate account-based central bank records into transferable tokens on DLT networks and back, while keeping central bank accounting intact. The Eurosystem will monitor technical and operational outcomes from the pilots.

Regulators will review policy and legal frameworks to ensure tokenized central bank money fits rules for payments, securities settlement and anti-money-laundering controls.

Market participants will be invited to take part in pilots to test technical designs, interoperability models and commercial use cases such as tokenized short-term instruments, corporate bonds and interbank liquidity operations. Wider availability will depend on market demand and pilot results.

Work on tokenization and central bank digital infrastructures has been under way for several years across Europe. The extension provides a risk-free settlement medium for tokenized activities while keeping central bank accounting and settlement finality unchanged.