Piero Cipollone, Member of the Executive Board of the European Central Bank (ECB), presented a compelling vision for the future of European financial markets during his keynote speech at the Bundesbank Symposium on the Future of Payments. Cipollone emphasized the potential of creating an integrated European capital market for digital assets, a concept he termed as a “digital capital markets union.”
Cipollone started with the historical background of the financial system by going back to the 14th century and the double-entry bookkeeping. He pointed out that despite such tremendous changes in the modern financial markets, bookkeeping and intermediation fundamentals have remained similar. This continuity has increased complications and escalating costs within international monetary networks. In Europe, the problem of regulatory fragmentation adds to the picture. For example, the 35 exchanges for listing and 41 exchanges for trading create an unconnected financial system.
However, even with attempts to link post-trade infrastructure like T2S, the absence of a unified rulebook and standardization keeps the continent’s capital markets siloed. Cipollone noted that although the European Union has come a long way in solving issues related to regulatory challenges, These include inadequate standardization of regulation and the absence of integrated supervision. These barriers have increased demands for better connections and more definite rules.
Cipollone Stresses Need for Fast DLT Regulation
Cipollone argued that remedies to these difficulties may lie in technology such as tokenization and DLT. Tokenization converts traditional assets into tokens, while DLT records assets on decentralized networks rather than centralized ledgers. He pointed out that these technologies could generate an integrated European capital market. It would remove many of the inefficiencies and the separated systems that are characteristic of Europe at present.
Cipollone emphasized that public authorities need to act quickly to seize this opportunity. However, he said that if the regulation and supervision of the DLT platform are not well handled, the market will become more fragmented as they are already. Additionally, the use of central bank money may be threatened if the system is supplanted by private substitutes like stablecoins for payment and settlement.
Lastly, Cipollone urged central banks to proactively support the technological transition, ensuring that central bank money remains the backbone of the European financial system. A digital capital markets union could fundamentally reshape European finance. However, careful coordination, regulation, and timely action will be crucial to its success.
