On Thursday, the Governor of the Banque de France, François Villeroy de Galhau, delivered a speech to stakeholders from the banking sector, dispelling fears over the impact of a future digital euro. The Governor argued against the retail central bank digital currency (CBDC) being a ‘‘solution in search of a problem”. And he stated the digital euro “will not lead to disintermediation.”
Digital euro as cash+
Mr. Villeroy summarized the rationale of CBDCs with a simple question: “As everything becomes digital, why should central bank money be the only thing to remain on paper?” Digitalization is disrupting the fields of finance and payments, so the European Central Bank (ECB) should keep up with the pace of innovation and make strides in the design of digital currencies.
The Governor described the e-euro as a “digital banknote” with the “same characteristics as existing cash” (privacy, safety, accessibility) but additional functionality, including peer-to-peer transfers and conditional payments. We note the mention of privacy versus the anonymity of physical cash.
He also reassured that the digital euro would not replace other forms of money and that it would be up to citizens to decide its future need.
“They will determine the pace of development,” he said.
No disintermediation risks
Mr. Villeroy then turned to the relationship between banks and the regulator, arguing that “money is and will remain a public-private partnership.”
Commercial banks will be in charge of distribution and the central bank has “absolutely no intention to open private accounts,” so there would not be any risks of disintermediation or financial stability if there are CBDC holding limits.
“It’s very probably our duty to issue a CBDC, but It is our will to issue it with you, commercial banks, and not against you,” he said, adding that central banks are “complementary and not competitors on money and payments.”
The Governor noted the potential benefits for stakeholders as the digital euro will effectively provide a “platform for innovation” and foster convergence toward common standards.
France’s wholesale experiments
Lastly, Mr. Villeroy referred to the Banque de France’s work on wholesale CBDCs, where the aim is to foster tokenized finance and cross-border interoperability. The central bank will publish an update on its recent wholesale experiments in July.
