Cipollone warns stablecoin-led systems could threaten monetary policy, as the Eurosystem advances its digital euro and DLT settlement plans
Tokenisation cannot scale without central bank involvement, according to Piero Cipollone, who set out the European Central Bank’s position on digital assets, payments and monetary policy in a speech delivered in Rome.
Cipollone, a member of the ECB’s executive board, argued while tokenisation and distributed ledger technology (DLT) are often framed as efficiency upgrades, their impact is more fundamental, describing them as a “general-purpose technology” capable of reshaping the structure of financial markets.
At the centre of that transformation, however, must sit central bank money. “Tokenised central bank money is necessary for the market to expand and reach a tipping point,” Cipollone said on May 4.
Without it, he warned, tokenised markets would struggle to achieve the scale and trust required to function effectively, as participants would be forced to settle transactions using assets that carry credit risk and lack finality.
Coordination problem slows adoption
A key theme of the speech was that tokenisation’s benefits are not guaranteed. Unlike incremental innovations, its gains depend on widespread adoption across the financial system.
Cipollone pointed to a coordination problem, noting that “no single component can transform the financial system on its own,” which reduces incentives for early movers.
This challenge is compounded by uncertainty over how tokenised markets will ultimately be structured. Competing models, from a single shared ledger to multiple interoperable networks, each come with trade-offs between efficiency, competition and fragmentation.
To avoid siloed ecosystems, the ECB stressed the importance of common standards and equal access, warning that without them the market could fragment and limit the efficiency gains tokenisation promises.
Stablecoins raise monetary policy concerns
While Cipollone acknowledged that private assets such as stablecoins could play a role in tokenised markets, he was explicit about the risks of a system built around them alone.
“If they were the only settlement asset available… [this] would risk endangering monetary policy transmission, financial stability and monetary sovereignty,” he said.
One concern is the potential shift in bank funding structures. If stablecoins were widely adopted for payments, they could draw deposits away from the banking system. “They would attract a significant share of bank deposits, changing bank liabilities in a profound way,” Cipollone noted.
Such a shift could affect banks’ ability to lend, altering how monetary policy is transmitted through the real economy. The ECB executive also highlighted financial stability risks, particularly the potential for rapid digital runs. In a tokenised environment, Cipollone warned, redemptions could unfold far faster than in traditional systems, compressing stress events into hours rather than days.
Digital euro and DLT settlement plans
The speech provides further insight into how the ECB is positioning itself amid these developments, particularly through its work on tokenised central bank money and the broader digital euro.
Cipollone confirmed that the Eurosystem will begin offering tokenised central bank money for DLT-based transactions from September as part of its Pontes Project. This initiative is designed to provide what he described as a “safe asset and a trusted common anchor” for tokenised markets, enabling them to scale without relying solely on private settlement instruments.
Alongside this, the ECB has already started integrating DLT into its collateral framework, accepting certain tokenised assets in credit operations and exploring broader eligibility.
These efforts sit alongside the ECB’s wider digital euro project, which aims to ensure that central bank money remains relevant in an increasingly digital payments landscape. While the digital euro is primarily focused on retail use cases, the development of wholesale tokenised settlement infrastructure reflects a parallel strategy: maintaining the role of public money across both traditional and emerging financial systems.
