- The governor of the Bank of France announced today that the country’s national bank could introduce a CBDC by 2023.
- The proposed asset is a wholesale CBDC for use by central banks and financial institutions, not the general public.
- France’s proposed CBDC would incorporate a permissioned DLT and automated market maker (AMM) technology.
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A “viable prototype” for a wholesale CBDC could be issued by France’s central bank by 2023. The technology will borrow major features from blockchains and DeFi protocols and will be aimed at financial institutions and central banks.
France Is Creating a CBDC
France’s central bank expects to have a Central Bank Digital Currency (CBDC) in operation by 2023.
François Villeroy de Galhau, Governor of the Bank of France, announced that goal in a speech today at the 2022 Paris Europlace International Financial Forum.
There, he said that France’s central bank aims to test a “viable prototype” for a wholesale CBDC in 2022 and 2022. The asset could then be used in settlements by 2023, at which time the bank would implement a European pilot regime.
CBDC Is Wholesale, Not Retail
Villeroy de Galhau was careful in his speech to mark the difference between wholesale and retail CBDCs.
A retail CBDC is a digital currency that, much like cash, is issued to the general public for everyday use. Wholesale CBDCs, on the other hand, are only used by financial institutions that hold reserve deposits with a central bank.
According to Villeroy de Galhau, retail CBDCs have been a “focus of both public excitement and private questions” and “doubts… even fears, among commercial banks.”
By contrast, wholesale CBDCs have been less contentious and have allowed institutions to experiment quite rapidly.
Asset Will Have Two Main Purposes
Two “critical use cases” for wholesale CBDCs have been identified by the Bank of France: the tokenization of securities and the enhancement of cross-border and cross-currency settlements. CBDCs are expected to streamline both processes.
Experiments have also led the central bank to birth two “key innovative assets.” The first is a proprietary DLT—a permissioned blockchain. By comparison, public blockchains such as Bitcoin and Ethereum are permissionless.
Thes second innovation is an automated market maker (AMM) that, in Galhau’s own words, is directly “inspired from the DeFi markets.” The AMM is expected to serve as a platform for central banks to settle transactions across multiple CBDCs.
Other central banks have echoed Villeroy de Galhau’s cautiousness around retail CBDCs.
In the U.S., Federal Reserve Vice Chair Brainard said last month that a retail CBDC would need approval from Congress and the president. Even then, its creation would take at least five years.
Disclosure: At the time of writing, the author of this piece owned ETH and several other cryptocurrencies.