.svg)
France’s central bank governor has confirmed that Eurosystem plans for a wholesale central bank digital currency (CBDC) are due within weeks, in the face of controversy regarding the digital euro.
François Villeroy de Galhau, governor of the Banque de France, the plans during a speech at a CBDC conference this week.
“The eligibility criteria and the call of interest will be published in the coming weeks, and experiments will be rolled out over the course of 2024, including trials with real transactions,” he said.
The governor added that commercial banks and other financial actors will have a “key role” in the “success of the exploratory work of the Eurosystem”.
A wholesale CBDC is a currency issued by a central bank in digital form, to be used exclusively by central banks, commercial banks or other financial institutions to settle transactions.
While retail CBDCs cater to individuals and merchants, and aim to facilitate everyday transactions, wholesale CBDCs instead target financial institutions and large-value interbank settlements.
Banque de France has been proactive in this field, conducting 12 experiments in wholesale CBDC since November 2020.
According to Villeroy de Galhau, findings so far have shown that central banks will be able to steer the money supply of wholesale CBDCs, which he said "is a fundamental requirement for its potential deployment".
“France is leading the way in Europe, and somehow in the world together with the Monetary Authority of Singapore, the Swiss National Bank and the Bank for International Settlements,” said Victor Warhem, representative of the Centre for European °ϲʹ in France and payments expert.
Warhem told Vixio that France’s central bank is hoping that the European Central Bank, which does not have the resources to build a wholesale CBDC, will take on France’s ideas.
In turn, this could lead to the establishment of an integrated platform to exchange tokenised assets, with an EU wholesale CBDC as a settlement instrument, at a European level.
“A wholesale CBDC — by definition tokenised central bank money — in contrast with retail CBDCs, which may not rely on distributed ledger technology (DLT), does not make sense without a tokenised infrastructure for commercial deposits and assets.”
Warhem suggested that a wholesale CBDC is “far more appealing to central banks, technologists and financial establishments than a retail CBDC in the EU”.
“This is because the advantages are easy to perceive, such as improved smoothness of transactions due to the suppression of intermediaries both within the EU and with international partners, atomic transactions and traceability.”
Nevertheless, Warhem pointed out that much like the ECB’s digital euro plans, some costs remain hard to assess.
This includes the impact on liquidity requirements for financial establishments, whether scalability problems are solved and coordination to decide which segment of markets to tokenise shall prove difficult.
“Tokenised systems have not convinced many financial establishments in the EU so far, with the big exception of Société Générale and SG Forge,” he explained.
“Investments have not been decided and many projects remain stuck at the sandbox stage,” he said.
“Maybe the public impulse can help large banks in the EU jump on the other side, the one of institutional tokenised finance.”
The French governor’s vision
The official echoed EU colleagues, such as the ECB’s Fabio Panetta and the Bundesbank’s Burkhard Balz, in talking up the benefits of a CBDC for sovereignty.
“A permissioned network together with smart contracts put central banks in a position to maintain their oversight of the network and even to enhance their ability to control the use and circulation of its CBDC," said Villeroy de Galhau.
"Controlling central bank money is not a final goal per se, but it is essential for ensuring the anchoring value of central bank money and hence financial stability."
The central banker confirmed that Banque de France will explore “alternative protocols and blockchains”, as well as its own platform, Distributed Ledger for Securities Settlement System (DL3S).
Villeroy de Galhau also pressed the need for common standards on emerging technologies, such as DLT, although he suggested that central banks should not prematurely favour specific technology types.
"In terms of governance, the focus should be on establishing common standards and protocols for DLT platforms and wholesale CBDCs, after evaluating all designs and technological options," he said.
“Common standards will be essential to designing new financial infrastructures that are interoperable and can interact with existing conventional market infrastructures."
Villeroy de Galhau further suggested that wholesale CBDCs "must" embrace climate-related concerns.
"I truly believe that the tokenisation of finance could make a valid and effective contribution to the challenge of climate change, since it is expected to streamline the intermediation chain and to save energy-consuming processes," he said.
"In that field, the design of wholesale CBDCs must be exemplary to enable the development of energy-efficient financial markets."
The central bank official also called for financial stakeholders to leverage the transparency and automation offered by DLT to foster the development of green finance; for example, by incorporating environmental, social, and governance (ESG) criteria into smart contracts.
Villeroy de Galhau’s speech comes at a sensitive time for the EU’s CBDC work. Industry and politicians alike have expressed scepticism towards a retail CBDC.
The ECB’s Panetta meanwhile has previously that a wholesale CBDC “already exists”.
“It has provided efficient digital infrastructures for the settlement of transactions between banks in central bank money.
“The discussion about wholesale CBDC should therefore focus on how existing infrastructures have to be adapted as technologies and needs evolve,” he said in a speech last year.
