Piero Cipollone: Modernising finance - the role of central bank money

Keynote speech by Mr Piero Cipollone, Member of the Executive Board of the European Central Bank, at the 30th Congress of ASSIOM FOREX (the Italian financial markets association), Genoa, 9 February 2024.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Since their inception, central banks have continuously adapted to the changing requirements of the payment sector. They have also taken a keen interest in ensuring it functions smoothly, to protect financial stability and the implementation of monetary policy.

Central banks provide the financial system with a safe asset at its core: central bank money. Convertibility into central bank money is what keeps the value of private money stable. And the pivotal role played by central bank money is what connects all the different parts of the payments system. In short, central bank money ensures the singleness of money and the integration of the payments system.

This is particularly valuable in a monetary union like the euro area: central bank money – cash or reserves – can be used to settle transactions from and to all parts of the euro area. This ensures that one euro in Lisbon is the same as one euro in Riga.

But for central bank money to retain its stabilising and unifying role, it must stay at the forefront of technology to ensure it remains an attractive means of settling payment transactions. There is no reason why central banks should be the only stakeholders not keeping pace with the digital transformation. In fact, they should be at the vanguard of this transformation, acting as an anchor of stability for financial innovation and providing a safe path for modernising finance. The Eurosystem is working to maintain this role.

This is true for retail payments. That is why we are working on a digital euro, so that everyone can use central bank money not just in its current physical form – cash – but also in digital form.

Today, however, I will focus on new technologies for settling transactions between financial institutions in central bank money, often referred to as wholesale CBDC to distinguish it from retail CBDC, which is used by the general public.

Historically, central banks have played a key role in simplifying the settlement of these transactions, supporting and often leading the transition from physical forms of money to book-entry formats, and to the electronic clearing and settlement of payments, making it possible to update accounts almost instantaneously.

We now find ourselves on the brink of another significant shift: the advent of tokenisation. According to market participants[4], digitally representing claims using distributed ledger technology (DLT)[5] has great potential. However, this transformation could redefine current financial intermediation and wholesale settlement structures.

To enable central bank money to continue performing its stabilising role, even as the financial system undergoes this transformation, we need to find technological solutions that will allow it to also be used to settle transactions recorded on new DLT platforms.