François Villeroy de Galhau, the Governor of the Banque de France, spoke today about how central bankers should respond to blockchain developments. He talked as the Chairman of the BIS, introducing the BIS Innovation Summit.
The Governor recognized the ability of blockchain to remove intermediaries and create new solutions. “Are these disruptions as powerful as those brought by the invention of the internet three decades ago?” he asked. “It may be too early to tell. But DLTs are expanding at a fast pace and have the potential to bring about far reaching changes.”
Like most central bankers, Villeroy de Galhau dismissed Bitcoin as only having marginal use as a means of payment and questioned its credentials as a store of value, comparing it to 17th century Dutch tulips. He likened stablecoins to early private banks that issued their own notes.
However, the Governor was keen to emphasize that neither he nor central bankers are against progress.
“Although our mandates fully enshrine stability, resisting innovation is not in our DNA,” he said. “On the contrary, financial stability without innovation would mean conservatism. And innovation without financial stability would feed distrust and hence be unsustainable.”
So in terms of finding the rightful place for central banks in an emerging DLT world, Villeroy de Galhau says central banks must simultaneously innovate and regulate.
He highlighted that most crypto-asset activities happen via new intermediaries. “DeFi could be a misnomer while leading to (the) concentration of some private players that are not regulated, at least for the time being,” said Villeroy de Galhau.
In terms of regulation, he cited the oft-quoted need for the same activity, same risk, same rule. And applying that to the DLT sector, there’s a need for equal security, compliance, responsibility and accessibility.
Turning to central bank digital currencies (CBDCs), these should not be regarded as a threat. “CBDC is not about the big brother of central banks threatening the free world of decentralized finance,” said the Governor. “Let us refuse these two caricatures. Rather CBDC could be about providing further tools to help make DeFi successful, and yes, sustainable.”
He mentioned the Banque de France’s wholesale CBDC work and participation in cross border CBDC projects Jura and Dunbar. While France has not previously been mentioned as a Dunbar participant, last year it was involved with a payments trial with the Monetary Authority of Singapore (MAS), which initiated Dunbar.
The Governor concluded with a quote from Zaha Hadid, the award-winning architect known for her curved buildings: “There are 360 degrees, so why stick to one?”