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BIS Innovation Summit 22 March 2022
Central banks in a DLT world
Speech by François Villeroy de Galhau,
Governor of the Banque de France
Press contact: Mark Deen (mark.deen@banque-france.fr)
Ladies and gentlemen,
It is a great pleasure and honour to give this opening speech of the second BIS
central banks' commitment in
Innovation Summit, which illustrates new
technologies, notably through the BIS Innovation Hub. Since their creation
almost fifteen years ago, distributed-ledger technologies (DLTs) have evolved
and opened up new possibilities, building alternative circuits and removing
intermediaries, supporting new solutions and use cases. Are these disruptions
as powerful as those brought by the invention of internet three decades ago? It
may be too early to tell, but DLTs are expanding at a fast pace, and have the
potential to bring about far-reaching changes.
The invention of bitcoin, the first crypto-asset, stemmed from the desire to build
a new "currency" -
I emphasise the quotation marks here -, outside the remit of
states and central banks. That was back in 2008, and what we have observed
since then is that the use of bitcoin as a means of payment remains very
marginal, because it does not feature any of the fundamental characteristics of
currency. Nor is it a store of value, but rather a speculative asset, somewhat
similar to the Dutch tulip bulbs from the 17th century.
The most disruptive feature of bitcoin was its underlying technology, which has
since then been offered in different versions of DLT underlying various types of
assets and uses. Second-generation crypto-assets now embed smart contracts
that have led to the development of new services and products, the last being
NFTs (non-fungible tokens). Among second generation crypto-assets, so-called
stablecoins or backed-assets try to reduce their volatility by anchoring
themselves to fiat currencies and sovereign assets. Still, they create
fragmentation, and are fraught with regulatory and operational uncertainties.
Here too there are historical precedents: free banking in the 18th and 19th
centuries, when each private bank issued its own banknotes. It had major
drawbacks, such as credit risk embedded in settlement assets. The introduction
of central bank money as a common and safe settlement asset was a major
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breakthrough and since then has become the rule in the best interest of all
economic agents. It is now a public good, and taken for granted at least in
advanced economies.
We, central bankers, have mixed feelings towards crypto-assets: on the one
hand, they bring innovation and meet some expectations, especially in emerging
economies; on the other hand, they carry significant potential risks, related to
money laundering, breach of data privacy and high volatility among others.
Although our mandates fully enshrine stability, resisting innovation is not in our
DNA, on the contrary. Financial stability without innovation would mean
conservatism; innovation without financial stability would feed distrust, and
hence be unsustainable. Notwithstanding our sometimes old-fashioned image,
we have been at the forefront of financial innovation for decades. Our
achievements however often remain unknown to the public: our state-of-the art
settlement systems are aimed at banks, not end-users. How can we find our
rightful place in this emerging DLT world? Benign neglect, or on the contrary
prohibition, are no longer options. While keeping our eyes and minds open, we
have to at once regulate and innovate.
First, regulate and supervise all players that issue, value, deal, settle, offer
custody and related services regarding these new assets. The initial bitcoin
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ideology of a full disintermediation or even disembodiment turned out
unsuited to real life: most users do not directly intervene on the blockchain, they
"Decentralised finance"
use platforms and new intermediaries. could be a
misnomer while leading to concentration of some private players that are not
sound supervisory principle "same activity,
regulated for the time being. The
same risks, same rules" a "square of
should apply and be expressed as
guarantees": (1) equal security; (2) equal compliance; (3) equal responsibility;
and (4) equal accessibility. Regulation has to be built consistently across
jurisdictions, and is especially important as links between the real world and the
crypto world are growing stronger. Against this backdrop, and in accordance
with the G20 agenda that was initiated two years ago, most jurisdictions are
considering legislative changes to deal with crypto-assets. For instance, the
European Union must adopt shortly a regulation called Markets in Crypto-Assets
(MiCA). It is essential that we all ensure that there is a real-time and ambitious
approach across the globe.
Second, central banks shall continue to be active players in innovation. A few
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have already launched digital currencies, some including the Eurosystem
are testing it in pilot experiments. We at the ECB decided a two-year
investigation phase under the leadership of my colleague Fabio Panetta, before
taking a decision about whether to go further by the end of 2023. Retail CBDCs
have caught the attention of the public; however, they raise sensitive questions,
especially regarding the use cases for households and the role of commercial
banks. That is why I would call for a ceiling of the individual CBDC holdings.
the other possible digital currency, a "wholesale" CBDC for
Let us not forget
banking institutions. DLT could bring the benefits of central bank money
digitalisation to a new level, with increased efficiency of some interbank
processes and the development of new services, especially in a cross-border
context. Let me be clear, CBDC is not about the Big Brother of central banks
threatening the free world of decentralized finance. Rather it could be about
providing further tools to help make Defi successful and sustainable. The
Banque de France carried out nine successful experiments in 2021, with a wide
array of partners and on different segments, and a new series of experiments
focusing on cross-border payments will take place in 2022. It is a great
satisfaction to see the BIS Innovation Hub pushing ahead with several
wholesale CBDC projects such as Jura and Dunbar, in which the Banque de
France is an active participant. And more broadly, it also a satisfaction to see
that more and more central banks, notably some from Asia, show an interest for
wholesale CBDC.
I will conclude by quoting Zaha Hadid, the Iraq born architect who was the first
woman to receive the Pritzker prize in 2004. Her iconic buildings, all swooping
"There are
curves and flowing space, never featured any right angle. 360
degrees, so why stick to one?" Zaha Hadid used to say. What an inspiring
thought for us today. I thank you for your attention.