On Thursday, the governor of the Banque de France, François Villeroy de Galhau, delivered a speech to stakeholders in the banking sector, allaying fears about the impact of a future digital euro. The Governor argued against retail central bank digital currency (CBDC) being a “fix in search of a problem”. And he affirmed that the digital euro “will be No lead to disintermediation”.

Digital Euro as Cash+

Mr. Villeroy summed up the rationale for CBDCs with a simple question: “As everything goes digital, why should central bank money be the only thing that needs to stay on paper?” Digitization is disrupting the fields of finance and payments, so the European Central Bank (ECB) must keep pace with innovation and advance the design of digital currencies.

The governor described the e-euro as a “digital note” with the “same features as existing cash” (privacy, security, accessibility) but additional functionality, including peer-to-peer transfers and conditional payments. We take note of the mention of privacy versus the anonymity of physical money.

He also assured that the digital euro would not replace other forms of money and that it would be up to citizens to decide its future need.

“They will determine the pace of development,” he said.

No disintermediation risks

Mr Villeroy then touched on the relationship between the banks and the regulator, arguing that “money is and will continue to be a public-private partnership”.

Commercial banks will be in charge of distribution and the central bank has “absolutely no intention of opening private accounts”, so there would be no disintermediation or financial stability risks if there are CBDC holding limits.

“It is very likely our duty to issue a CBDC, but it is our will to issue it with you, the commercial banks, and not against you,” he said, adding that central banks are “complementary and not competitive in money and payments.”

The Governor noted the potential benefits for stakeholders, as the digital euro will effectively provide a “platform for innovation” and encourage convergence towards common standards.

The wholesale experiments of France

Finally, Mr. Villeroy touched on Banque de France’s work on wholesale CBDCs, which aims to foster tokenized finance and cross-border interoperability. The central bank will publish an update on its recent wholesale experiments in July.

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