The core of Lagarde's warning
Tokenized finance, which uses blockchain to issue digital representations of assets like bonds, real estate, and commodities, has attracted significant interest from financial institutions. But Lagarde said the system lacks a trusted, risk-free settlement asset. That role, she argued, belongs to central bank money. Without it, tokenized markets could become fragmented, unstable, and vulnerable to runs. She didn't name specific projects, but her warning applies broadly to the industry.
Why central bank money matters
Most tokenized transactions today settle using commercial bank money or stablecoins. Both carry credit and liquidity risks that central bank money doesn't. Central bank money — the liabilities of a central bank — is the safest asset in any economy. Lagarde's point is that for tokenization to become a mainstream part of the financial system, it needs a settlement layer backed by a central bank. That makes central bank digital currencies, or CBDCs, a prerequisite for scaling tokenized finance, not just an option.
The ECB's own digital currency work
The ECB has been exploring a digital euro for several years. A digital euro would give households and businesses a direct claim on the central bank, much like cash. Lagarde's statement suggests the digital euro could also serve as the settlement asset for tokenized finance, providing the risk-free backbone she says is missing. The ECB completed a two-year investigation phase in 2023 and is now in a preparation phase. A final decision on whether to issue a digital euro has not been made, but the work continues.
What Lagarde's comments mean for the timeline
Her warning comes as private financial firms push ahead with tokenization projects. Major banks and asset managers have launched tokenized products, including bonds and money market funds. Without central bank money, Lagarde implied, those
