ECB plans small investment in tokenized public-sector securities

The European Central Bank 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 settlement system for distributed ledger technology-based transactions launched Monday. The ECB said the initiative will give it firsthand experience with trade execution, settlement, systems and portfolio management across the full investment lifecycle. 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 Executive Board will determine the timing and operational details after preparatory work is completed. The European Stability Mechanism said Pontes would connect emerging distributed ledger technology platforms with established central bank infrastructure and help preserve central bank money's role as the settlement asset as financial markets become increasingly tokenized.