ECB warns digital money must evolve to preserve financial stability

The European Central Bank has said central bank money must evolve to remain relevant in an increasingly digital financial system.

Speaking in Frankfurt, Piero Cipollone, Member of the ECB’s Executive Board, said digitalisation is reshaping retail payments, wholesale financial markets, and cross-border payment infrastructure across the euro area. He warned that if central bank money does not adapt to technological change, it risks losing relevance in key parts of the economy, weakening public money’s role as an anchor of stability and increasing fragmentation in the financial system.

Retail payments are becoming more digital and platform-based, while wholesale financial markets are being shaped by tokenisation and distributed ledger technology. Cipollone said digitalisation could help reduce costs and speed up cross-border payments if it is used in a way that avoids further fragmentation.

The ECB’s policy response is built around three areas: preparing for a possible digital euro for retail payments, enabling DLT-based transactions to settle in central bank money, and interlinking fast payment systems to improve global cross-border transactions.

Cipollone said the digital euro would be designed as a digital form of cash for day-to-day retail payments, not as an investment product. He said it would complement physical cash and private payment solutions while ensuring that people retain access to a public digital payment option across the euro area.

For wholesale markets, the ECB said tokenisation could make capital markets more efficient, but only if tokenised settlement assets are available. The Eurosystem plans to allow DLT-based transactions to settle in central bank money from September 2026 through its Pontes project, while its Appia work will develop a longer-term vision for Europe’s tokenised financial ecosystem.

Cross-border payments remain a concern because they are still too slow, costly, and opaque. The ECB said interlinking fast payment systems could help reduce these frictions while protecting the monetary sovereignty of participating jurisdictions.

Why does it matter?

The speech frames digital money as a financial stability and sovereignty issue, not only a payments innovation story. As payments, markets, and cross-border settlement become more digital and tokenised, the ECB wants central bank money to remain the risk-free settlement asset, anchoring trust in the financial system. The message is also a response to the risk that private platforms, stablecoins, and fragmented infrastructures could weaken the uniformity of public money if central banks fail to adapt.

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