The European Central Bank (ECB) is taking a decisive step toward tokenizing fiat money, announcing the issuance of a digital euro directly on the blockchain. This is not merely a technical experiment but a strategic response to the expansion of private stablecoins dominating on-chain settlements. ECB Executive Board member Isabel Schnabel, during her speech in Jackson Hole, clearly outlined the regulator's position: the future belongs to state-issued digital currencies, not corporate tokens.
Why the ECB Rejects Stablecoins
Schnabel's key argument lies not in the reliability of issuers but in systemic vulnerability. Even the most well-backed stablecoins cannot function as a lender of last resort. In moments of panic, when the market simultaneously rushes to liquidity, only a central bank can expand issuance without limits. A private issuer tied to reserves physically cannot do this. Schnabel drew a historical parallel with the banking crisis of 1907, when the inability to expand the money supply backed by government bonds necessitated the creation of the Federal Reserve. In her view, stablecoins are not a replacement but merely a complement to central bank money, and relying on them as a settlement base is a dangerous illusion.
Statistics only confirm the urgency of action. The volume of dollar stablecoins in circulation already exceeds $304 billion, while euro tokens barely reach $1 billion. If settlements in Europe continue to shift to private tokens, the eurozone would effectively conduct transactions in dollars, losing monetary sovereignty. This is unacceptable for Brussels and Frankfurt.
Launch of Pontes: A New Type of Infrastructure
Next month, the Pontes project will launch, connecting the key settlement system TARGET Services with public blockchain platforms. The technology has undergone extensive testing: from May to November 2024, 64 organizations from nine countries tested 58 scenarios, conducting settlements worth approximately €1.6 billion in central bank money. Final transactions will initially go through TARGET2, but smart contracts and atomic swaps will come later.
Schnabel considers three options: direct token issuance, a bridge between systems, or delegating tokenization to a private company via an omnibus account. The ECB leans toward the first—direct issuance. Otherwise, the regulator would remain merely an observer, unable to conduct repo operations through code. In parallel, work continues on the Appia project, which should determine whether Europe needs a single distributed database or several. The example of the French company Lise, which received the first EU license for a tokenized exchange, is telling—it proves that tokenization opens capital markets to small businesses.
My view: The ECB is entering direct competition with private issuers, and this changes the rules of the game. The digital euro is not just "another CBDC"—it is an attempt to regain control over on-chain liquidity. For stablecoins, this is an existential risk: if institutional flows move to state-issued tokens, dollar coins will lose their primary function—settlement. The market should prepare for liquidity fragmentation and a reassessment of stablecoins' role as a "safe haven."