The future of money: What does tokenised finance mean for FX markets, liquidity and financial stability?

Thank you. My name is Bas ter Weel and I am looking after your money. I know, that may sound rather strange and perhaps even a bit disturbing, but in a way it’s true. At De Nederlandsche Bank it is my job to make sure that your money, the euro, keeps its value. So that when you do your groceries they cost more or less the same as last year. And that you can pay safely and efficiently any way you like. Of course, we do that together with our partner central banks in the Eurosystem.

And before anyone wonders, yes I am a human. I'm not an AI-generated avatar, not a hologram, and not a particularly advanced chatbot. What you see here is still the old-fashioned version: flesh, blood, and a slight dependence on coffee.

Nowadays, that may not be an entirely unnecessary clarification.

New technologies are changing the world. 20 years ago, we could not have imagined how digital the financial industry would be today. And now, we are facing the next round of change: Distributed Ledger Technology, or DLT, could change the world of finance, again. DLT enables multiple participants to maintain a shared, synchronised record of assets and transactions. Rather than relying on a central intermediary, the integrity of the ledger is collectively maintained by the network’s participants.

I distinguish two types of digital assets that are relevant in the context of DLT and financial markets: tokenized financial assets and settlement assets.

DLT is important for financial markets because it enables tokenised financial assets and liabilities to be available in a shared network. Tokenisation is a process that involves issuing or representing assets in the form of digital tokens on a distributed ledger. This is what I call tokenized financial assets.

But DLT is not only about the tokenisation of traditional financial assets. It is also a story about the settlement assets needed to support transactions in tokenised assets. There are basically three possible core assets in which tokenised assets could be settled: stablecoins, tokenised deposits and central bank digital currencies. I will explain all three concepts later.

Tokenisation may look like a niche development at the edge of finance, but is increasingly becoming part of the discussion about how financial markets may evolve in the years ahead.

For a conference like this, with so many of you active in global currency markets, that matters. If tokenisation changes the way assets are issued, traded and settled, it will also affect how liquidity moves across borders, how currencies are exchanged and, ultimately, how FX markets function.

To make this more tangible, imagine a European institution exchanging euros for Japanese yen. In a tokenised environment, you could imagine both currency positions to be represented on the same distributed ledger. Once the exchange rate is agreed, a smart contract could ensure that euros and yen change hands simultaneously, with ownership recorded instantly on the ledger, without an intermediary. The trade itself still requires liquidity and price discovery, but the execution and settlement process could become more integrated and efficient.

That sounds great, doesn’t it? But it can only be truly fun if it is done safely and in a stable manner. How can we make sure it’s safe and stable?

Let me turn first to stablecoins as a potential settlement asset in FX markets and broader payments.

Stablecoins are privately issued tokens designed to maintain a peg to fiat currency. When we talk about stablecoins, many people will think first of major US dollar stablecoins such as Tether. But we also see European initiatives emerging, Including Qivalis, which has applied for an EMI licence in the Netherlands. That matters, because it shows that innovation in digital money is also happening here in Europe. That being said, MiCAR compliant euro denominated stablecoins are still much smaller in size as you can see on the lefthand graph.

Stablecoins remain small relative to today’s payments and FX markets, as shown in the charts. Nevertheless, they have attracted attention because they could support 24/7 settlement and enable payment-versus-payment transactions on digital ledgers. Their potential benefits are likely greatest in cross-border payments and in countries with less stable currencies or less developed payment infrastructures. In the European Union, however, the value proposition for retail payments is less compelling, as consumers and businesses already benefit from highly efficient, reliable and stable payment systems.

The benefits of stablecoins should not be taken for granted. Much depends on interoperability: payment systems, stablecoins and financial market infrastructures need to work together seamlessly, or interoperable as we call it. Without this, multiple stablecoins and DLT platforms could fragment liquidity and settlement across separate networks. In that case, it would be unclear whether any efficiency gains would materialise at all. Interoperability is therefore in the interest of stablecoin issuers, users and market infrastructures alike.

Growing adoption would also raise important questions around resilience and financial stability. The term ‘stablecoin’ is no guarantee for stability. Past episodes of market stress have shown that maintaining a peg depends critically on the quality, liquidity and transparency of reserve assets. Disruptions can have significant consequences for users and markets. MiCAR provides safeguards to address some of these risks, but we should remain careful as the market continues to develop.

From my perspective as a central banker, the key issue is not whether stablecoins can play a role in settlement, but whether they can improve efficiency without compromising robustness or stability. If these conditions are met, stablecoins may become one of several settlement assets supporting more efficient cross-border transactions.

Now let’s turn to tokenised deposits. Tokenised deposits are commercial bank money. They are claims on the balance sheet of a credit institution, represented on a digital ledger. The difference with stablecoins, is the direct link to the existing banking system. 

In principle, this helps preserve the singleness of money and most importantly our two-tiered monetary system, especially when settlement can occur in central bank money. This is highly relevant for financial markets and also for FX markets, because trust in the uniformity and interchangeability of money remains one of the foundations of market functioning.

So far, tokenised deposits appear well-placed to deliver many of the functional benefits associated with stablecoins. They may offer similar gains but in a way that is more closely connected to the established monetary and banking system. This could carry a certain appeal for FX markets. But it is not a finished story yet. To fulfil that role, tokenised deposits need to be interoperable across networks. And because they are a direct claim on commercial bank balance sheet, the transferability of tokenised deposits remains a challenge.

So, where are central banks placed in this story? We see initiatives around tokenised settlement assets, and also tokenised financial assets such as bonds and other debt instruments. Although it seems promising for the future, the scale of DLT-based assets is still quite small.

One of the most likely reasons for that is a lack of trust in stablecoins and tokenised deposits as settlement assets, especially among financial institutions. For these initiatives to take off, it must be possible to settle DLT-based transactions in the safest way possible, and that means settlement in central bank money. So that is where central banks come into play.

What do I mean by that? The global monetary system has always been two-layered, with public money provided by central banks –reserves held by banks at the central bank, along with banknotes, of course - and private money provided by private banks. That two-layered system has served us well. It combines the safety and confidence of central bank money with the innovative capacity and customer-facing role of private institutions. And that same logic should continue to guide us in a tokenised world.

Central bank money is the safest asset in the world. It has no liquidity risk, no market risk, no counterparty risk. It is the financial system's bedrock. That is why public money must remain the reliable and future-proof foundation of Europe’s financial system. It is the best, and maybe the only truly solid foundation for private sector innovation to build and flourish on. For you as the FX community, that should sound familiar: confidence in the ultimate settlement asset remains essential.

This is precisely why the central banks in the Eurosystem are working together on ways to make settlement in central bank money possible in tokenised environments. We call this wholesale central bank digital currency, or wholesale CBDC. In one sense, this is not entirely new. Financial institutions already settle in central bank money every day using traditional technologies. What changes here is the technology layer, not the fundamental objective.

The Eurosystem’s exploratory work in 2024 showed clear market demand. The Eurosystem is now moving from preparation to implementation. It will be mostly banks going live first. Pontes is the short-term bridge solution between the traditional central bank money settlement world and emerging DLT platforms. Pontes will go live with an initial group of four DLT operators and a number of market participants, with further onboarding expected thereafter. For the first time, tokenised transactions will be settled in central bank money within a live Eurosystem environment.

Looking beyond the initial launch, the Eurosystem is also exploring longer-term options through Appia, an initiative that examines how tokenised assets and different forms of money could interact more efficiently within the European financial ecosystem.

When it comes to FX markets, it is not only new technology such as DLT that can help improve their functioning. Central banks are also working on improvements in the traditional system. One example is the work on a possible extension of the operating hours of Europe's central bank money settlement system. Another is the interlinking of fast payment systems across borders. Over time, such steps could help generate more overlap between different currencies and time zones, which is exactly the kind of practical improvement that matters in FX markets.

I am wrapping up. DLT and tokenisation could fundamentally change financial markets, including FX: how liquidity is provided, how settlement risks are managed, how activity is distributed across time zones and how cross-border transactions may be executed. These are major opportunities. But if these innovations scale without sufficient interoperability, standardisation and safeguards, the risks will grow too and potential remains unrealized without a business case.

That is why central bank money must remain the foundation, with private innovation building on top of it. This combination gives us the best chance of achieving both progress and trust.

Central banks are working to make this possible. But we cannot do it alone.  Standardisation will require joint efforts from market participants, central banks and policymakers worldwide. It will require a complex set of decisions that have to be made about issues such as the role of public and private money, the degree of interoperability, legal frameworks, code governance, liquidity backstops, and other factors. To say that this will be a challenge is an understatement. Especially in the current international political climate. But we need to make progress. Because if the tokenised world grows, these policy choices will determine whether it will strengthen or fragment the financial system.

And maybe in 10 years’ time – or even earlier – my artificial successor will stand here talking about the blessings of the new system. With smart contracts that execute trades in tokenised assets, transfer ownership, and move payments — all on a shared ledger.

But for the time being, I will continue doing my part to look after your money. Not as a robot, not as an algorithm, but simply as a fellow human being who believes that progress works best when it is built on trust.

Thank you.