ECB backs tokenisation with strict safeguards

The European Central Bank said tokenisation could improve efficiency in EU capital markets but only if supported by central bank money, interoperable systems and strong regulation.

In its latest Macroprudential Bulletin, the ECB warned that distributed ledger technology can enhance market structure but requires policymakers to keep pace with emerging risks as adoption scales.

The central bank said tokenisation is moving from concept to early deployment, but benefits will only be realised safely if regulatory frameworks evolve alongside the technology.

The ECB outlined how tokenised assets could streamline issuance, settlement and corporate actions by reducing reliance on intermediaries and legacy systems, potentially improving liquidity.

It also highlighted early evidence that tokenised bonds may reduce borrowing costs and tighten bid-ask spreads, though these benefits remain conditional and unproven at scale.

The report flagged risks in tokenised money market funds and euro stablecoins, noting potential liquidity stress, operational vulnerabilities and possible contagion effects in financial markets.

Overall, the ECB signalled support for tokenisation as part of a broader push to modernise EU capital markets, but emphasised that financial stability and regulatory control remain top priorities.