It is a great pleasure to discuss Darrell Duffie’s paper “Tokenized finance and the perimeter of central banking” at this year’s Jackson Hole Economic Policy Symposium.
Tokenisation in wholesale finance has emerged as one of the most promising applications of distributed ledger technology (DLT), allowing financial assets and money to be represented as digital tokens on programmable platforms.
The potential benefits of tokenisation are substantial. This is particularly true for the euro area, as tokenisation presents an opportunity to foster integration by enabling assets and settlement to operate on common infrastructures.
However, as Darrell argues, the take-off of tokenised finance has so far partly been held back by the lack of a safe settlement asset. His paper provides an excellent overview of where central banks stand in filling this gap.
Drawing on the work currently underway in the euro area, I would like to explore three key questions.
First, is central bank money critical for the development of tokenised finance, or could well-designed stablecoins take over the role of a safe settlement asset? My conclusion is very much in line with Darrell’s: stablecoins are dominated by settlement solutions based on central bank money, reflecting in part the unique ability of central banks to elastically provide liquidity.