The governor of the Bank of France believes that ‘synergies’ between public and private sectors could be crucial for the development and success of a Digital Euro.
France’s central bank governor François Villeroy de Galhau made the comments during a speech at the Bundesbank conference Banking and Payments in the Digital World in Berlin. This came after European Central Bank (ECB) President Christine Lagarde revealed that a report on the viability of a Digital Euro would be released in the near term.
The full report into the possible benefits and potential pitfalls of a European central bank digital currency (CBDC) will be open for public consultation once it has been released.
The focal points
The ECB is still at an early exploration stage of a CBDC and further details on the institution’s thoughts and plans in the space will be revealed over the next month. As Lagarde highlighted in her speech, a lot needs to be considered before anything concrete is decided.
“The Eurosystem has so far not made a decision on whether to introduce a digital euro. But, like many other central banks around the world, we are exploring the benefits, risks and operational challenges of doing so. The findings of a Eurosystem taskforce are expected to be presented to the public in the coming weeks, followed by the launch of a public consultation,” Lagarde said last week.
The ECB President also outlined the changing landscape of the global financial system amid a move to new digital solutions. Payments systems have been forced to evolve due to the popularity and utility of Bitcoin and the various other cryptocurrencies.
Lagarde highlighted three major considerations for the development and use of a Digital Euro for retail usage in particular.
The first is ‘maintaining access to central bank money’, with the Eurosystem continuing to issue physical banknotes with a Digital Euro serving as a complimentary feature for digital inclusion as a means of payment.
The second consideration addresses the risks posed by creating a CBDC. Lagarde says that a major move of bank deposits to a Digital Euro could potentially change the role of banks financing the economy.
Lagarde’s final consideration is that a Digital Euro needs to meet the general public’s ‘demand for digital payments’ without discouraging or disrupting existing private payment solutions.
Race to a Digital Euro is on
Following on from Lagarde’s considerations, De Galhau hammered home the importance of European countries prioritizing the development of CBDCs.
“We, the ECB and the Eurosysteme, may decide to issue money in digital form. Let me be clear: we cannot allow ourselves to lag behind on CBDC. That may mean that we create if necessary a retail CBDC, in order to ensure the accessibility of central bank money for the general public, in particular in countries where the use of cash in payments is declining. It may mean that we Europeans may decide to issue a wholesale CBDC, with the aim of improving the functioning of financial markets and institutions. Within the Eurosystem, the ECB has established a high-level task force to prepare a comprehensive analysis of the possible benefits and challenges related to retail CBDC, to be discussed in coming weeks within our Governing Council.” De Galhau said.
While anxious to make sure that Central Banks do not get left behind in the wake of private sector developments of various digital currency options, De Galhau says that there needs to be collaboration between the parties going forward.
“In this journey, we must set up appropriate synergies between public and private actors. Unequivocal support should be given to the European Payment Initiative (EPI): this project is essential for the safety, the rapidity and the European sovereignty of payments. Success of EPI is determined by access to a large customer base, adherence of large merchants, and ultimately interoperability should EPI have ambitions to develop outside of Europe.”
Earlier in his speech, the Bank of France governor highlighted the fear that big technology companies would build private financial infrastructure powering independent ‘monetary’ systems which would compete with legacy monetary sovereignty.
De Galhau believes that public-private partnerships in Europe will ensure that the wider economy benefits from the progress of the digitization of money.
“The way forward for Europe could be different and could rather disseminate central bank money in a retail form with the intermediation of the private sector and ensure interoperability between EPI and other non-European payment solutions.”