Banque de France Governor weighs CBDC issuance versus bank intermediation

Central banks are increasingly considering the creation of a digital form of their currencies, but the idea raises doubts and even fears, said Banque de France governor François Villeroy de Galhau, in a recent speech.

The part of the project which is quasi-consensual, with strong use-cases, is the one which raises little public interest – which does not mean that it is not key: wholesale CBDC. A wholesale CBDC could be used for the settlement of such securities issued on DLT, which is essential to prevent market and liquidity fragmentation. This technology also streamlines the information flows in financial markets, from trading to exchange procedures and settlement. Second, a wholesale CBDC could enhance cross-border and cross-currency settlements.

Retail CBDC, by contrast, is the focus of both public excitement and private questions. The main rationale for a digital euro is to preserve the role of public money in a digital economy. Such means of payment, adapted to the demand of users in the digital age, would (i) preserve the accessibility and usability of central bank money, (ii) support our monetary sovereignty, and limit the risk that “external” digital assets – be they cryptos or non-European CBDC – would be used as settlement assets in the euro area, (iii) support the strategic autonomy of the European continent – and hopefully contribute to the emergence of a pan-European payment solution e.g. the European Payments Initiative, which could be used as a vehicle for the distribution of a digital euro.

The Eurosystem is currently looking at the possible scope and design of a digital euro. Let me just share my personal thoughts about the general framework that should see light: in my opinion, similarly to the current intermediation model, as many functions as possible should be delegated to intermediaries. Obviously, some functions should remain the exclusive privilege of the Eurosystem because they are at the core of its mandate and cannot, by definition, be outsourced. This is the case specifically for the issuance of a potential digital euro.

The Eurosystem should entrust banks with the distribution of digital euros to final users, while setting technical, functional and commercial rules like for example the branding, logo, and fee structure. The Eurosystem could also outsource parts of the settlement, such as recording or validation, to intermediaries.

Moreover, it is clear that some functions should remain under the sole responsibility of intermediaries. In particular, I believe that the Eurosystem should not have the role of managing digital euro holdings: the Banque de France closed its last private customer accounts over 20 years ago, and does not intend to reopen any.

Regarding the possible risks of banks’ deposit conversions, we must and will ensure that a digital euro remains a means of payment rather than a saving/investment asset. This could be achieved by capping the maximum amount of digital euro in circulation, at a low enough level. In a completely other field, regulated savings, ceilings for the financial product Livret A have proven an efficient tool, without requiring the intervention of a Big Brother to check on them.

Read the full speech

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