European Central Bank to Invest in Tokenized Public-Sector Securities

The European Central Bank (ECB) is preparing to invest a “small portion” of its own funds in tokenized public-sector securities.

The purchases will be settled in central bank money through Pontes, the Eurosystem’s settlement system for distributed ledger technology-based transactions launched Monday.

The ECB said in a separate announcement Monday that the initiative will give it firsthand experience across the full investment lifecycle, including trade execution, settlement, systems and portfolio management.

The purchases will come from a non-monetary-policy portfolio that generates income to help cover the central bank’s operating expenses.

Initial investments will focus on euro-denominated securities issued by euro-area central and regional governments, public agencies and European supranational institutions.

The ECB’s Executive Board will determine their timing and operational details after the preparatory work is completed.

The European Stability Mechanism said in a Monday statement that Pontes would connect emerging DLT platforms with established central bank infrastructure, helping preserve central bank money’s role as the settlement asset as financial markets become increasingly tokenized.