ECB Pushes On-Chain Euro Settlement as Stablecoin Use Grows

The European Central Bank (ECB) is exploring the direct issuance of central bank money on blockchain networks as Europe prepares for a more tokenized financial system.

ECB Executive Board member Isabel Schnabel outlined the case during the Jackson Hole symposium on Friday, arguing that tokenized financial markets need access to central bank money for settlement. The proposal concerns reserves used by financial institutions rather than the retail digital euro or money held in consumer bank accounts.

Schnabel also warned against relying on stablecoins as the primary settlement asset. While stablecoins can be designed with strong reserves, she argued that private issuers cannot create additional liquidity during periods of financial stress in the same way a central bank can.

“Stablecoins are best understood as complements to central bank money, not substitutes for it,” Schnabel said.

She cited the 1907 banking panic as an example of the risks created when the money supply cannot expand quickly enough during a crisis. The Federal Reserve Act of 1913 later addressed that problem in the United States.

The debate has become increasingly important as dollar-backed stablecoins dominate the market. Dollar-pegged stablecoins have a circulating value of roughly $304 billion, according to DefiLlama, while euro-denominated stablecoins remain below $1 billion.

The ECB is already moving toward blockchain-based settlement through Pontes, which is scheduled to launch in September 2026. The initiative will connect TARGET Services, the eurozone’s core settlement infrastructure, with distributed ledger technology platforms.

The ECB previously tested similar technology between May and November 2024. Sixty-four institutions across nine jurisdictions participated in 58 use cases, settling almost €1.6 billion in central bank money.

Initially, final cash settlement under Pontes will remain within TARGET2, while features such as smart contracts and 24/7 operations could follow.

Schnabel identified three potential approaches: issuing central bank tokens directly, connecting existing settlement infrastructure to blockchains, or allowing private entities to tokenize ECB reserves through omnibus accounts. She favored direct issuance, which could give the ECB greater control over programmable operations such as repos.

Meanwhile, the ECB’s Appia project is examining whether Europe ultimately needs a single shared ledger or an interconnected network of platforms as tokenized finance expands.