Central banks must extend their role into digital payments and tokenised finance to preserve trust in the euro and monetary autonomy, a speech published by the Bank for International Settlements said.
The Nov. 9 speech, titled “Safeguarding trust and monetary sovereignty in a digital payments era”, called for preserving the division of functions between central banks and commercial banks as payments change. It described a response combining changes to central bank services with support for private payment networks and financial projects.
Cash use for everyday purchases is declining while contactless and mobile payments are spreading. Domestic payment networks are losing market share, allowing providers from outside Europe to take a leading role in card payments, which have become the euro area's dominant non-cash payment method.
The emergence of dollar-denominated stablecoins is a challenge for the euro area, alongside the growing role of foreign payment providers. Those changes raise questions about payment efficiency, safety and Europe's ability to retain control over its payment services.
For transactions between financial institutions, the speech focused on tokenisation, the recording and transfer of financial assets as digital tokens on distributed ledgers. The technology could change how assets are issued, traded, held and settled, as well as the roles of intermediaries and the systems supporting those transactions.
Potential benefits include faster transactions and settlement, lower operating costs and automated financial processes. But possible problems include systems working together, the availability of money for transactions and Europe's autonomy as tokenised finance develops.
Central bank money and commercial bank money should continue to perform separate, complementary functions in digital finance. Preserving that structure would protect stability, trust and the euro's consistent value across different forms of money.
Central banks in the Eurosystem are adapting their money services and supporting systems to extend that structure into digital payments and tokenised markets. They are also supporting private services operating across the euro area, including Wero, and work on how those services could complement a digital euro.
In France, the Pythagore project and a French market group working on innovation and tokenisation are efforts to improve coordination and develop practical projects. One possibility is a privately developed clearing system for tokenised bank deposits, using Pontes to settle transactions in tokenised central bank money.
The effects of these innovations will depend partly on how central bank policies and services evolve. Responses may differ across jurisdictions according to local circumstances and policy priorities.
