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France Starts Second Stage of Wholesale CBDC Experiments, Central Bank Governor Says

Banque de France head François Villeroy de Galhau said the work ensures that France stands ready to bring central bank money as a settlement asset as early as 2023.

The French central bank, Banque de France, wants a working wholesale central bank digital currency (CBDC) ready to go as early as 2023, according to the bank’s governor, François Villeroy de Galhau.

Galhau announced on Tuesday that the bank has kicked off the second phase of experimentation into a wholesale CBDC, which could be used to streamline domestic and cross-border transactions between banks. CBDCs are digital versions of a jurisdiction’s sovereign currency which, in France’s case, is the euro.

“We want to get closer to a viable prototype, testing it in practice with more private actors and more foreign central banks in the second half of 2022 and in 2023,” Galhau said during a speech at the 2022 Paris Europlace International Financial Forum on Tuesday.

“This work ensures that we stand ready to bring central bank money as a settlement asset as early as 2023,” Galhau said.

Banque de France, which began experiments on a wholesale CBDC in March 2020, wrapped up its first stage of experimentation in December 2021. Galhau said on Tuesday that the first stage included nine experiments run hand in hand with the private sector and “other public actors.”

Central banks are increasingly exploring wholesale CBDCs that are built on distributed ledger technology (DLT) and promise to help speed up interbank settlements.

The Bank for International Settlements (BIS), an association of central banks from around the world, has a number of ongoing experiments with central banks across Asia and Europe that are testing wholesale CBDCs for a variety of use cases, including cross-border payments. The BIS Innovation Hub’s Project Jura explores the direct transfer of euro and Swiss-franc wholesale CBDCs between French and Swiss commercial banks.

Retail CBDCs

Retail CBDCs, issued directly by a central bank to a country’s citizens, who can use them to purchase goods and services, can theoretically cut out traditional intermediaries like commercial banks, Galhau said, addressing a more contentious type of CBDC.

Retail CBDCs are the subject of heavy debate among policymakers due to the risks these currencies could pose to financial stability. For one, in times of economic stress, retail CBDCs could give way to bank runs whereby citizens withdraw their deposits from commercial banks in large numbers and convert their holdings to CBDCs.

Galhau believes that retail CBDCs should be issued in partnership with private banks.

“The Eurosystem should entrust banks with the distribution of digital euros to final users, while setting technical, functional and commercial rules – for example, the branding, logo and fee structure,” Galhau said.

Some functions, Galhau said, should remain under the “sole responsibility” of intermediaries.

“In particular, I believe that the Eurosystem should not have the role of managing digital euro holdings: The Banque de France closed its last private customer accounts over 20 years ago, and does not intend to reopen any,” Galhau said.

The European Central Bank is exploring a retail CBDC. On Monday, finance ministers in the European Union discussed the digital euro and agreed that it should not replace, but rather complement, cash usage in the bloc.

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