French central bank head announces beginning of wholesale digital euro project phase

The first phase of experiments with a wholesale digital euro has been completed, and Phase 2 experiments will begin this year, Banque de France governor François Villeroy de Galhau said Tuesday. Four or five new experiments are expected to be launched.

Speaking at the Paris Europlace International Finance Forum, the French central banker summed up the European Union’s achievements in crypto-asset regulation under the French presidency, mentioning the Transfer Fund Regulation (Travel Rule) and Markets in Crypto-Assets (MiCA), specifically.

The Eurosystem is looking at the scope and design of a digital euro central bank digital currency (CBDC). The main rationale for a retail digital euro is to maintain the role of central bank money in the economy even as it is “threatened by the digital revolution,” Villeroy de Galhau continued. He spoke in favor of maximum intermediation in the design, noting that intermediaries have more experience than central banks with customer relations and Know Your Customer/Anti-Money Laundering (KYC/AML) measures. He said:

“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.”

A wholesale CBDC, to be used for interbank transfers and similar transactions, will be no less important than the retail, Villeroy de Galhau said. He cited the critical use cases of settlement of securities issued with digital ledger technology (DLT) and cross-border and cross-currency payments. The Banque de France designed a proprietary digital ledger technology, called DL3S, for a potential future system. It also produced an automated market maker platform based on a decentralized finance model, where settlements of multiple CBDCs could be carried out.

New experiments will involve testing a prototype digital euro with private actors and other central banks in preparation for the 2023 implementation of the pilot regime. Villeroy de Galhau stressed the importance of interoperability between DLT and the traditional system. DLT will complement rather than replace traditional infrastructure, he said.

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