On Thursday, details about the Banque de France‘s wholesale digital euro experiments were shared. Governor François Villeroy de Galhau outlined the tests’ objectives, one of which is to see whether central bank money should be accessible to organizations that don’t currently have access.
The same point also came up in the recent Swiss National Bank‘s (SNB) trials for wholesale CBDC. The purpose of wholesale CBDCs is often to enable settlement on DLT platforms, in the Swiss case, it was tested against the SIX digital exchange.
One of the issues raised in the Swiss National Bank’s recent wholesale CBDC trials is whether it might choose to influence DLT platforms’ governance to restrict some participants from accessing the central bank money. Years ago, CBDC trials by the Bank of Canada’s Project Jasper highlighted that brokers’ lack of access to the payment system meant reintroducing credit risks.
Hence the French banks consideration may not only be whether to allow fintechs greater central bank money access. It’s likely also about players such as investment brokers and other capital market participants.
The French central bank Governor outlined the other primary goals of the tests as clarifying how a whole central bank digital currency (CBDC) could make more efficient and fluid settlement systems and surface the most promising technologies.
Five months ago, the French central bank announced that it had selected eight organizations to participate in the CBDC trials. Each of those firms has created mini consortia for the tests.
In terms of the specifics that are being explored, these include how financial instruments can be exchanged for CBDCs, smoothing cross border payments and “new ways of making CBDCs available to financial sector players”.
The trials are being conducted within the current legal framework. So the results might signal the need for regulatory changes. We’re guessing one of those cases might be which organizations have access to central bank money.
Governor Villeroy de Galhau also said that the bank is participating in the broader retail digital euro work being orchestrated by the European Central Bank (ECB). Two weeks ago, the ECB outlined the topics it is currently exploring. These include whether the current TIPS settlement system could support hundreds of millions of customers. This route would mean account-based rather than token-based CBDC.
Other ECB avenues include exploring interoperability between centralized systems and distributed ledger technology (DLT), payment dedicated blockchains that include identity, and using hardware devices for offline transactions.