ECB should embrace blockchain to safeguard its role, Schnabel says

The European Central Bank should embrace blockchain technology to safeguard its role at the heart of the financial system, ECB board member Isabel Schnabel said on Friday, arguing the shift could also help it respond faster to market strains.Central bankers around the world are grappling with the rise of blockchain-based finance, in which transactions are settled on distributed digital ledgers rather than through traditional market infrastructure.Schnabel said the ECB and other central banks should also "go on-chain", allowing them to provide liquidity and conduct monetary policy operations applying the technology increasingly used to trade and settle financial assets."To reap the full benefits, central banks need to go on-chain too," she said in remarks prepared for the annual Jackson Hole Economic Policy Symposium. "That means bringing central bank money into the tokenised environment and modernising the tools of policy implementation."She argued this would preserve the role of central bank money, rather than private alternatives such as stablecoins — tokens pegged to traditional currencies like the dollar that are increasingly used to settle transactions.Citing recent research, Schnabel said the ability to programme transactions on blockchain networks could make central banks more nimble when providing liquidity.For example, they could apply differentiated interest rates or automate collateral requirements, she said.Schnabel said this could be achieved through a single European ledger on which central-bank and private money, as well as financial assets, are settled, citing South Korea's Project Hangang as an example.Alternatively, multiple ledgers could be linked and able to communicate and process transactions across platforms.The ECB is already working to integrate blockchain technology into its payment system.Its Pontes initiative will link distributed-ledger platforms to existing payment infrastructure. A parallel project, known as Appia, is examining the longer-term architecture, standards and legal framework needed for a European market in tokenised assets.