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Digital euro legislation planned for 2023. Lagarde confirms wholesale CBDC considered

digital euro cbdc

At a conference hosted today by the Banque de France, EU Commissioner Mairead McGuinness said that the Commission plans to propose legislation for a ‘possible’ digital euro in 2023 to enable parliament and the European Council to debate it.

The digital euro work is currently in the prototyping phase, and Banque de France Governor François Villeroy de Galhau confirmed that a decision on whether to proceed would be made at the end of 2023, with a potential launch in 2026 or 2027.

While work on a euro central bank digital currency (CBDC) has focused on the retail side, earlier this week, the ECB confirmed it is also considering a wholesale CBDC for interbank payments. 

More details about a possible wholesale digital euro

“If commercial banks expect distributed ledger technology to be part of improved payment infrastructure, then we should certainly be open to it and be prepared to endorse distributed ledger technology as part of this infrastructure mechanism,” said European Central Bank (ECB) President Christine Lagarde.

A major difference between a wholesale CBDC and a retail CBDC is central banks already provide digital money to commercial banks, just not using blockchain. Hence there are no regulatory hurdles for a launch. 

Talking about the timing of a CBDC, the French central bank Governor observed, “This time could come sooner than expected with the upcoming entry into application of the so-called European Pilot Regime in early 2023. This new regulation offers a unique opportunity for the Eurosystem.” 

He was referring to legislation allowing for securities tokenization pilots, which permit certain regulations to be waived. These include restrictions on exchanges dealing directly with consumers and dropping the segregation of trading and post-trade functions, which can both happen on the same ledger.

The Banque de France conducted nine experiments with wholesale CBDC for two years and recently said it would do more. Today Governor Villeroy de Galhau said it plans another three wholesale CBDC experiments. Two will focus on cross border payments, including CBDC interoperability and liquidity management tools that use DeFi, or automated market making (AMM) specifically.

The French central bank previously conducted similar AMM experiments with the Monetary Authority of Singapore using the AMM for foreign exchange (FX) transactions. A key benefit is the potential for 24/7 FX trading and payments. The Governor said an upgraded AMM would be tested.

It also previously conducted cross border CBDC trials with the Swiss National Bank. The third new French trial will involve using a CBDC to settle the issuance and trading of tokenized bonds. The Bank previously provided a wholesale CBDC for the issuance of the €100 million European Investment Bank bond on the Ethereum blockchain.

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