The central banks of France and the UK have moved towards the creation of central bank digital currencies (CBDCs), with the Banque de France issuing a call for applications to experiment with a CBDC for interbank settlements, while the Bank of England (BoE) publishes a discussion paper as it assesses the risks and benefits of CBDCs.
The separate moves come as a growing number of monetary authorities worldwide continue to explore the potential of issuing CDBCs. The trend is being driven by technology advances and declining cash usage in many countries, and has been given a further boost in recent weeks by the shift towards contactless payments during the global coronavirus pandemic.
France feeds in to Eurosystem
Banque de France wants to identify “concrete cases integrating CBDCs in innovative procedures for the clearing and settlement of tokenised financial assets”, according to its call for applications.
The bank says in its call for applications that the results of its experiments feed into its contribution to a broader project conducted by the Eurosystem – the monetary authority of the Eurozone – on the potential implementation of a CBDC. It points out that “any decision to create a CBDC is a matter for the Eurosystem”.
The Banque de France deadline for applicants is 15 May, with interviews in June and selection of applications in July.
Global Government Forum reported last year that the Frankfurt-headquartered European Central Bank was investigating the technical aspects of a digital currency, with several options being studied.
The Banque de France had previously suggested that it had plans to step up its research on CBDC, with governor François Villeroy de Galhau saying in a speech in December 2019: “The creation of a CBDC […] is neither a precondition for nor a guarantee of more efficient payments. However, we as central banks must and want to take up this call for innovation at a time when private initiatives – especially payments between financial players – and technologies are accelerating, and public and political demand is increasing. Other countries have paved the way – it is now up to us to play our part, both ambitiously and methodically.”
The work is being co-ordinated by the Banque de France’s Infrastructures, Innovation and Payments Directorate (DIIP) within the General Financial Stability and Operations Directorate (DGSO). The experiments will be conducted with support from the Banque de France’s open innovation laboratory, Le Lab.
Bank of England focuses on retail CBDC
Meanwhile across the English Channel, the BoE is currently welcoming inputs to its CBDC discussion paper.
The purpose of the 57-page paper, Central Bank Digital Currency: Opportunities, Challenges and Design, is to “begin a dialogue on the appropriate design of CBDC and an evaluation of whether the benefits of CBDC outweigh the risks”, the BoE says.
The paper focuses exclusively on retail CBDC, designed to meet the payments needs of households and businesses outside the financial sector.
Among the points made in the paper, the BoE says that a “very successful CBDC could displace existing payment systems and ultimately reduce diversity of payment options, creating a new form of concentration risk”. It adds that “the prospect of the introduction of CBDC could potentially discourage innovation in existing payment systems, potentially delaying other initiatives that could enhance resilience, speed and efficiency. These risks would need to be carefully managed”.
The BoE says its ongoing CBDC work will focus on four areas: impact on payments; impact on monetary and financial stability; functionality and provision of CBDC, including identifying the appropriate role of the public and private sector; and technology. The discussion paper asks a total of 35 questions across these four themes. The deadline for responses is 12 June.
Coronavirus highlights resilient payment types
Meanwhile, the Switzerland-headquartered Bank for International Settlements (BIS) last week published Covid-19, cash, and the future of payments, a bulletin examining how different countries have reacted to coronavirus.
The bulletin says that “resilient and accessible central bank operated payment infrastructures could quickly become more prominent, including retail CBDCs”. It adds that the pandemic “may put calls for CBDCs into sharper focus, highlighting the value of having access to diverse means of payments, and the need for any means of payments to be resilient against a broad range of threats”.
Other major countries making progress in respect of CBDCs include China. Coin Telegraphreported earlier this week that the People’s Bank of China continues to progress towards issuing a digital yuan. Global Government Forum detailed last year how the country was making strides towards a CBDC.
Earlier this year Global Government Forum reported that the BoE had teamed up with the Bank of Canada, the Bank of Japan, the Sveriges Riksbank (Sweden) and the Swiss National Bank, as well as the ECB and BIS, to share experiences as they assess the potential for CBDCs in their home jurisdictions.