In a speech yesterday, François Villeroy de Galhau, the Governor of the Banque de France outlined the central bank’s expansion of its work on a wholesale central bank digital currency (CBDC). He wants the central bank to be ready to support the EU’s DLT pilot regime for tokenized securities which comes into force on 23 March 2023.
The Banque de France is planning another four or five experiments this year and in 2023, involving more private firms and other foreign central banks. It previously worked with the Swiss National Bank, the Monetary Authority of Singapore (MAS) and Tunisia’s central bank on separate cross border payment projects.
“We must make a CBDC available on these infrastructures to match market demand for tokens so that our settlement asset is not substituted by private assets – which would be riskier,” said the Governor. In the absence of a CBDC, other providers are exploring alternatives. For example, SIX has already tokenized Swiss francs and is exploring tokenizing commercial bank euros. As is Fnality, the settlement solution backed by 16 major institutions.
Starting in March 2020 through to the end of 2021, the Banque de France ran a range of wholesale CBDC trials with nine different consortia. In addition to the eight private sector consortia it initially announced, it added the cross currency payment trial with the Monetary Authority of Singapore (MAS).
The Governor mentioned two infrastructures it will continue to use. These are its proprietary DL3S permissioned blockchain infrastructure and an automated market maker (AMM) platform which could be used for cross border or multi-CBDC platforms. The AMM is inspired by DeFi. A similar solution was used during the MAS cross border CBDC trial, which was conducted in collaboration with JP Morgan’s Onyx division.
Governor Villeroy de Galhau also discussed a retail digital euro. He spoke about the importance of the coexistence of commercial bank and central bank money. “These foundations – and especially the role of central bank money – are increasingly threatened by the digital revolution of the financial sector,” said the Governor.