Denis Beau, First Deputy Governor of Banque de France (France’s central bank) discussed the possibility of central banks in Europe developing a digital currency at the AFME Annual Capital Market Technology and Innovation Conference, held in Paris on 21st November.
Beau stated that the tokenization of financial assets, along with applications based on blockchain technology and distributed ledgers used for storage and exchange of electronic assets, can be a possible solution to meet consumers’ demand.
Additionally, he added that the Eurosystem should look into exploring these ideas and improve the conditions under which central bank money can be made available as a settlement asset, owning up to its role of one of the prominent critical wholesale clearing providers in Euro.
He further stated that one possibility would be for nations to issue a central bank digital currency in order to support wholesale clearing and settlement services through distributed ledger technology on a decentralized basis. Banque de France, he adds, is “quite open” for explorations in that direction along with the European Central Bank and other central banks in Europe.
Beau says that several of the major drawbacks of the current payment system are obstacles related to cross-border retail payments. And although it is possible to interconnect within a given area such as eurozone, on global scale it can be difficult, especially due to difference in currency. This is precisely where a digital currency could be useful.
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Beau suggests that central banks should engage with innovators and continue supporting them. He cited the example of artificial intelligence by the ACPR Fintech team which published its report in 2018 on the technology. He says that it is important to raise the issues at an early stage and clarify the development of blockchain technology in the financial sector.
Furthermore, Beau talked about the successes of the Eurosystem in demonstrating strong will to foster innovation. He discussed the Vision 2020 program and its comprising features like TIPS, a payment service, T2-T2S consolidation to increase liquidity management and finally the European Collateral Management System that is set to be launched in 2022. Beau now believes that there is a rising demand for fast and secure cross-border payment service.
He concluded the speech by saying that although technological advancements create opportunities, they also create risks and challenges. Central banks and supervisors should make their contributions and develop an approach to understand innovations emerging in financial sector. It has become crucial for central banks to adapt and play different roles in order to ensure financial stability in the system.
