Denis Beau: The future of central bank money in the coming digital
age of wholesale and retail payments
Keynote speech by Mr Denis Beau, First Deputy Governor of the Bank of France, at the
Singapore Fintech Festival, Singapore, 6 November 2024.
* * *
Ladies and Gentlemen,
I am delighted to be here with you at the Singapore Fintech Festival today to open this
second session on the future of money in a world of growing digitalisation in finance. I
would like to take this opportunity to share our perspective at the Banque de France on
this topic.
While wholesale and retail payment processes are being shaped by different drivers
and trends, they raise a common challenge for us at the Banque de France, given our
monetary and financial stability mandate: namely to safeguard and promote their safety
and efficiency in a digitalising financial system. To meet this objective, we at the
Banque de France are focusing our efforts on three key levers: first, adapting central
bank money services; second, supporting industry initiatives that align with our policy
objectives; and third, helping to shape an appropriate regulatory framework.
Today, I will primarily focus my remarks on our use of the first lever - the adaptation of
central bank money services - and on the importance we grant to that end to
cooperating and experimenting with other public and private stakeholders, exemplified
by the partnership we have established with the Monetary Authority of Singapore.
1. Wholesale digital payments
The safety of financial transactions depends to an important degree on the type of
settlement asset chosen. This has led policymakers and market participants for
decades now to favour central bank money as the preferred settlement asset in the
wholesale space.
This preference is well reflected in Principle 9 of the CPMI-IOSCO's Principles for
Financial Market Infrastructures (PFMIs).
Our conviction at the Banque de France is that, in an increasingly digitalised financial
system, where tokenised assets and DLT-based infrastructures may gain an important
role, central bank money should be maintained as the predominant settlement asset
between financial intermediaries. Private settlement assets, particularly stablecoins, are
being used and, in the absence of central bank money on DLT-based infrastructures,
could be widely used going forward to settle tokenised assets. But stablecoins do not
have the safety, liquidity and stability of central bank money. In addition, the lack of
coordination in the development of private settlement solutions, could lead to increased
market fragmentation.
This is why we think we need to adapt our central bank money services if we are to
address the settlement needs of an increasingly digital financial system. As such, the
Banque de France was one of the first central banks to launch an ambitious
experimental programme on wholesale CBDC.
The MAS and the Banque de France have been travelling companions on this journey
for some years now, and our partnership has proved very fruitful. We have been, and
continue to be, close partners working on BIS Innovation Hub projects involving
crossborder payment processes. Let me just highlight a few of those projects here. In the
wake of Project Mariana, where we tested the cross-border exchange of CBDC, we are
currently working together on Project Rialto to improve the FX layer of instant
crossborder payments. We are also exploring on-chain compliance checks for cross-border
transactions with Project Mandala, and are collaborating, with a group of financial
institutions, on the Les gardiennes Project, to implement a cross-border and cross
currency repo on-chain solution for tokenised financial assets issued in public
permissioned blockchain infrastructure.
Within the euro area, as it is likely that traditional infrastructures will coexist with new
DLT systems for quite some time, I believe that the availability of central bank money,
irrespective of the infrastructure used, and the interoperability within and between those
infrastructures, will be crucial to preventing market fragmentation and ensuring a safe
settlement process.
This is why, since May 2024, the Banque de France has been deeply involved in the
Eurosystem's ongoing exploratory work to test different interoperability solutions for the
settlement of tokenised financial assets in central bank money.
Looking further ahead, the BIS's vision of a unified ledger is promising and could start
with the development of regional unified ledgers, such as a European shared ledger.
Building on a public-private partnership, we could thereby establish a more integrated,
efficient, and resilient wholesale payment infrastructure, which could host wholesale
CBDCs and private settlement assets as well as tokenised deposits in commercial bank
money. This perspective lead the Banque de France, as a representative of the
Eurosystem, to take part in BIS Innovation Hub's Project Agorá, in order to explore the
possibilities of this type of programmable platform.
2. Retail digital payments
In the retail space, the digitalisation of payments offers numerous benefits for
consumers, by making payments more convenient, faster, and more innovative.
However, in Europe, it also creates challenges, particularly if we become increasingly
reliant on a few dominant non-EU players, such as international card schemes and
global tech giants. These companies leverage network effects and control proprietary
standards in retail payments, hampering competition and innovation in payments.
Ultimately, this increased reliance on non-EU providers raises concerns about the
operational resilience and strategic autonomy of the European payment ecosystem.
To help address those challenges, the Eurosystem is preparing an important evolution
in the central bank money services it provides to the general public, in the form of what
is called the "digital euro" - a retail CBDC. And the Banque de France is actively
contributing to the preparatory work for what is intended to be akin to a "digital
banknote" that will be available across the euro area, have legal tender status, be
governed by European standards, and be distributed by banks and other financial
institutions, to highlight just a few of its key foreseen characteristics, in addition to
privacy.
Let me just stress here that in this retail space our action goes well beyond adapting our
central bank money services. It also includes supporting the development of
panEuropean payment solutions, such as EPI's digital wallet, the Wero, and pushing for an
ongoing adaptation of regulatory and supervisory frameworks to support innovation.
To conclude, let me share two convictions regarding the conditions under which the
path towards the digitalisation of payments, including settlement assets, may lead to
sustainable benefits.
First we need a regulatory framework that does not stifle innovation but that is
sufficiently demanding to ensure that stakeholders are protected and that the stability of
the payment system, and the financial system more broadly, is guaranteed.
Second, we must complement this "confidence-prone" framework with central bank
money services adapted to the coming digital age of payments, built on strong dialogue
and comprehensive experimentation with other central banks - as we are doing with the
MAS - and with market participants. In the wholesale space, our objective at the
Banque de France is to adapt those services to ensure that central bank money
remains at the heart of settlement processes. In the retail space, our objective is to
widen the payment solutions and choices available to include a "digital banknote".