Digital currency: the Bank of France in action, without haste

The financial industry is undoubtedly preparing with tokenization its next big technological revolution. Central banks cannot stay away from these transformations, even if they tend to resist on some.

Thus, Facebook’s Libra electronic money project had caused a outcry from the authorities and central bankers. In response, they had accelerated their experiments around central bank digital currencies or MNBC.

Facebook’s Libra threat is no longer

Since then, Libra (now the Diem) has died and the sting has become less pressing for the institutions. However, the central banks have not abandoned their ambitions in terms of CBDC. According to the Bank for International Settlements (BIS), 93% are interested in it – more or less seriously.

In addition, more than half are conducting concrete experiments or working on a pilot. But in this sector, initiatives are part of the long term. The BIS estimates that 15 retail CBDCs and 9 wholesale CBDCs could be issued in 2030.

The first category consists of a currency usable by individuals, when the wholesale or wholesale CBDC is intended for banks only. And it is more particularly on this second category that the developments of the Bank of France concern.

Even if the impacts and the stakes – in particular for financial stability – of such a currency are a priori lower than for a retail CBDC, the French institution does not intend to rush. Its work effectively started in March 2020 and has already made it possible to highlight the advantages of a digital currency.

CBDC: assets for the Governor of the BdF

For its governor, François Villeroy de Galhau, the wholesale CBDC responds to two “decisive” use cases and likely to “improve the payments ecosystem”, namely the tokenization of securities and cross-border settlements.

To date, the Bank of France has carried out 12 tests and published two reports to take stock of its achievements – the last one a few weeks before, on July 21. The BdF thus indicates that it has conceptualized and implemented three digital currency models.

And for the issuance of a digital currency directly on DLT, all three are feasible: the interoperability, distribution and integration model. And the central bank to consider them as “complementary rather than exclusive. »

But when is the end of the research and a transition to practical work? At the end of last year, the Governor of the Bank of France expressed his wish to reach a viable prototype by 2023.

As for a finalized issue, it has not yet been announced – nor has it been announced for the digital Euro, in which the BdF is also collaborating. The French institution has two new steps on its horizon: “to support the Eurosystem’s exploratory work and to explore the limits of cross-border payments. »