By Jason Nelson
2 min read
The European Central Bank has begun preparing to invest a small portion of its own funds in tokenized securities, with the transactions settling through its newly launched Pontes service.
In an announcement on Monday, the ECB said the purchases would help it “gain practical experience as an investor and build institutional expertise in the use of distributed ledger technology (DLT) in financial markets.”
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“Tokenised financial markets continue to evolve, alongside the development of new DLT-based market infrastructures,” the European Central Bank said in a statement. “By investing directly, the ECB will gain first-hand experience across the full investment lifecycle, including trade execution, settlement, systems and portfolio management activities.”
Initial purchases will focus on tokenized, euro-denominated securities issued by euro-area governments, public agencies, and European supranational institutions. The assets—conventional securities such as bonds issued or recorded on a distributed ledger—will be settled in central bank money through the Eurosystem’s Pontes service.
The investments will come from the ECB’s own-funds portfolio, a non-monetary-policy portfolio that generates income to help cover operating expenses unrelated to its supervisory duties.
The ECB has not disclosed the exact amount it plans to invest or when purchases will begin. Its Executive Board will determine the operational details and timing after the preparatory work is complete, taking into account developments in tokenized issuances and Europe’s broader tokenized financial ecosystem.
Pontes is part of a Eurosystem strategy to “make central bank money fit for the digital age.” It will operate alongside Appia, an initiative developing a blueprint for a tokenized financial ecosystem in Europe.
“Pontes will allow market participants, including those who took part in the exploratory work, to further enhance their services, thereby supporting market developments while preserving the anchoring role of central bank money,” the bank wrote.
The ECB said Pontes will combine three tested systems into one service, allowing transactions to settle with cash tokens or through the Eurosystem’s T2 payment system. Its Hash-Link protocol will synchronize asset transfers and payments, while automated processing will reduce manual work.
Public and private institutions are pursuing similar projects. In May, JPMorgan filed for a tokenized Ethereum money-market fund. In June, New York Life Investment Management introduced a tokenized bond fund. More recently, earlier this month, India launched a pilot to issue and settle tokenized corporate bonds using its wholesale digital rupee.
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