A Structural Challenge 150 Years in the Making

Piero Cipollone, a member of the European Central Bank's (ECB) Executive Board, delivered a keynote at Harvard Law School's 'Building the Financial System of the 21st Century' symposium, arguing that tokenisation and distributed ledger technology (DLT) represent the first genuine opportunity to resolve the structural problem of financial intermediation costs. Notably, his remarks went beyond technology advocacy to address what role central banks should actively play in enabling this transformation.

Why This Statement Matters Now

The key statistic Cipollone raised surfaces an uncomfortable truth for the financial world. The unit cost of financial intermediation in the United States has remained roughly constant at around 2% of intermediated assets since the late 19th century. Major European economies — Germany, France, and the United Kingdom — show similar patterns. This figure has barely budged through the transition from telegraph to electronic messaging, from trading floors to electronic order books, and from multi-week settlement cycles to same-day settlement.

The implication is stark: previous waves of financial innovation increased speed and reliability without changing the underlying architecture. Trading, clearing, custody, and settlement have remained separated into distinct institutional layers, with banks, brokers, and information providers continuing to play essential intermediary roles. The efficiency gains from technology have been absorbed along the way rather than passed on to borrowers and savers.

How Tokenisation Is Different

Cipollone classifies tokenisation as a 'general-purpose technology' — one that reframes the logic of the entire system, rather than improving one part of it. By issuing or representing assets as digital tokens recorded on DLT networks, tokenisation allows the full life cycle of a transaction — issuance, trading, settlement, and custody — to take place within a single digital environment available 24/7. Where SWIFT revolutionised cross-border bank communication and electronic order books replaced trading floors, each of those innovations operated within the existing architecture. Tokenisation aims to replace the architecture itself.

The History: Why Costs Never Fell

The history of financial technology innovation is rich with irony. The telegraph and telephone of the late 19th century revolutionised market information flow. Computers in the mid-20th century automated payment processing. SWIFT, launched in 1977, became the standard messaging channel for international interbank transactions. Electronic trading platforms eliminated exchange floors in the 1990s, and settlement cycles compressed from T+5 to T+2, and in some markets T+1.

Yet throughout all of this, the fundamental practice of bookkeeping across separate ledgers remained unchanged. Each institution maintained its own ledger independently, and the cost of reconciling those ledgers became embedded as the persistent 2% figure. As technology advanced, so did systemic complexity, and each new technology created new intermediaries.

Outlook [AI Analysis]

What is significant about Cipollone's remarks is the simultaneous emphasis on possibility and conditions — tokenisation can break the historical pattern, but this is by no means guaranteed.

From this perspective, several developments are likely to unfold. First, the convergence of central bank digital currencies (CBDCs) and tokenisation is likely to emerge as a central policy agenda. The ECB's willingness to discuss this publicly may reflect a strategic positioning of wholesale CBDCs as the settlement anchor for DLT-based financial infrastructure. Second, preventing efficiency gains from being captured by intermediaries — the persistent historical pattern — will require regulatory frameworks, standards, and interoperability to be designed proactively. This process is likely to shift the central bank's role from neutral overseer to active infrastructure architect. Third, three barriers remain before DLT-based infrastructure becomes a global standard: regulatory gaps, interoperability challenges, and institutional resistance. The pace at which these are resolved will likely determine when and whether the benefits of tokenisation actually reach borrowers and savers.