With the advent of cryptocurrencies, jurisdictions all over the globe are racing to exploit blockchain technology and deploy their own state-backed cryptocurrencies dubbed Central Bank Digital Currencies (CBDCs). The rally was led by China, and the CBDC trend has now engulfed central banks all over the globe. As of now, there is hardly any bank that hasn’t researched cryptocurrencies, blockchain, and CBDCs.
The anonymity and untraceable nature of cryptocurrencies, especially Bitcoin, has been heavily abused ever since crypto has been in the limelight. This has been a major factor why authorities either want to ban it or regulate it. Adding to this, most of the cryptocurrencies have private organizations backing them, this is another big no for the regulators and banks as they are not willing to hand over any kind of economic authority to private companies.
A number of central banks are already in testing their CBDCs, and the French central bank is the latest to announce its testing phase. As per a document released on March 30, the Bank of France is looking for applicants to test the use of a digital euro in efforts to explore the various possibilities involved with CBDCs. The document reads:
“The aim is to explore the potentialities offered by the technology, and to identify concrete cases integrating central bank digital currency (CBDC) in innovative procedures for the clearing and settlement of tokenized financial assets.”
The bank has laid out some criteria for the applicants willing to participate, citing “an innovative nature” as a vital selection criterion. Furthermore, the applicants must be from the European Union or in a state party to the European Economic Area agreement. The applicants are required to submit applications by May 15, 2020, and the selection is due for July 10.
The bank is set to experiment on three main objectives such as demonstrate how CBDCs could replace the traditional interbank settlement and identify the various benefits and risks of implementing a CDBC based system. Among the potential CBDC use cases, the Bank of France outlines payment against financial instruments, payment against other central banks’ digital currency and payment against digital assets.
The bank also noted that it would not be involved in creating money with this experiment. Adding to this, the bank mentioned that it would not implement the project on a wide scale, adding:
“These experiments will act as a contribution by the Banque de France to a broader discussion within the Eurosystem, which will make any decision on whether to set up a CBDC. The tests are not intended to be continued on a long-term basis or applied on a wide scale by the Banque de France itself.”
Prior to this, the Governor of Bank of France, Francois Villeroy de Galhau made it quite clear that the sole power of issuing electronic currency or cryptocurrencies should be vested in the hands of the central banks and not private companies.
However, France has also opened up about cryptocurrencies and has recently declared that Bitcoin is a legal tender and should be treated with money. The decision to offer Bitcoin the same status as money came from a case between French cryptocurrency exchange Paymium and UK-based alternative investments firm BitSpread.