Most discussions about central bank digital currencies (CBDC) are somewhat reserved. François Villeroy de Galhau, the Governor of the Banque de France, made a forceful speech in favor of a digital euro, talking at the Bundesbank virtual conference. “Let me be clear: we cannot allow ourselves to lag behind on CBDC,” said the Governor.
He outlined a one or two-year window for a decision about a CBDC. His rationale is that there are two major risks. BigTech and social networks will create monetary systems that compete with public money sovereignty. He didn’t mention Facebook or any other network by name but pointed out Europe’s failure to create a global social network.
That’s a good point. Most major Western social networks come from the U.S. and there are strong social networks in Asia such as Tencent’s WeChat and Japan’s Line. The latter is controlled by South Korea’s Naver and also has a major presence in Taiwan, Thailand and Indonesia. But even if there were a European social network, would the central banks be willing to cede sovereignty to the private sector?
Not likely. But at least they’d have regulatory oversight.
However, the combination of social networks and the expanding reach of the international card networks creates a potential situation in which non-European private sector firms may control a significant proportion of Europe’s payments infrastructure.
The Governor identified the second risk as the launch of a CBDC by other countries without international coordination. A CBDC could spread beyond the issuing country’s borders and a CBDC template might be set. That includes how it interacts with private projects, which might start to limit the design options for other CBDCs.
Hence he proposed that a potential retail digital Euro with strong private sector involvement could address these issues and still be interoperable with the European Payments Initiative (EPI). He emphasized that support for the EPI and a digital euro are not mutually exclusive. In July, the EPI was launched by 16 European commercial banks to create a unified payment card and digital wallet solution across Europe and replace national card schemes.
Again, we emphasize that this is by far the strongest wording we’ve heard from a central banker arguing for a CBDC. But France is but one country within the union, albeit a powerful one.
The Governor also referred to the Banque de France’s work on a wholesale CBDC to enable on-chain settlement of tokenized assets. He commented that the CBDC would be discussed at the Governing Council of the European Central Bank (ECB) in the coming weeks. The ECB’s President Christine Lagarde also spoke about a potential digital euro at the same conference.
