Denis Beau: What will shape the future of crypto-assets?
Opening address by Mr Denis Beau, First Deputy Governor of the Bank of France, at the Banque
de France webinar, 15 June 2021.
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Good morning Ladies and Gentlemen,
Crypto-assets is a stimulating topic for a Central Banker and one that cannot leave him
indifferent!
It should be remembered that, historically, crypto-assets have been designed to be issued in a
decentralised manner, with the ambition to replace legal currencies: the very denial of the Central
Banker's functions.
Clearly, the initial objective was not achieved. So far, crypto-assets have proven to be much less
efficient than our traditional currencies, for different reasons, starting with price volatility,
transaction costs and delays, which make them difficult to use as a means of payment, not to
mention the risks they expose their users and service providers.
However, we cannot ignore the potential for innovation of crypto-assets and their underlying
technology, the technique of distributed ledgers or blockchain. Already in 2017, with the Madre
project, the Banque de France was one of the first central banks in the world to use this
blockchain technology for an interbank use case. At the rate of innovation, it is a long history, but
since then we have been closely monitoring the development of this vibrant blockchain and
crypto-assets ecosystem, the opportunities it creates and the risks it carries.
To open this webinar, I would like to share with you some thoughts on this ambivalence of
cryptoassets from the point of view of a central banker and a supervisor:
First, the challenges and opportunities of crypto-assets development.
Second, what we are doing at the Banque de France to address these challenges.
1. Challenges and opportunities
The world of the blockchain and crypto-assets is still an immature ecosystem: it is difficult to
predict in which direction and in which scale it will develop, but the emergence of many use
cases related to decentralised finance, the creativity of the ecosystem, point to many
opportunities. In particular, one can imagine that the innovations being developed will improve our
payment systems, especially for cross-border transactions, or also securities issuance and
settlement mechanisms...
The main challenge is therefore to ensure that the emergence of crypto-assets and, more
generally, decentralised finance contribute to the effectiveness and security of our financial
system.
Because this nascent ecosystem is also a source of many risks. The international work of public
authorities highlighted these issues from the risk of money laundering to the risk of the consumer
or investor.
I would like to highlight one of them: the risk related to the network effect. This risk was
mentioned when some Bigtechs considered creating supra-national "currencies": by offering to
an extremely large customer base, these projects raised questions about monetary sovereignty
of the states, as well as serious questions about the functioning of competition. Users may de
facto be captured by an ecosystem and have no choice of their payment service, or at least be
influenced by Bigtechs to use their services at the expense of competitors. But the opposite risk
exists: payment system fragmentation, which can lead to a deterioration in the service to users.
Central banks have a long experience with these issues, especially in the field of payments. In
this respect, the balance of cooperation and competition between industry players, in other
words "co-opetition", has proven to be historically valuable. One of the challenges now is to
maintain these "co-opetition" relationships over time, ensuring that they can include all players
and coordinate effectively the payment systems (and ecosystems) - traditional or innovative.
2. The Banque de France's action
To help meet these challenges, at the Banque de France, we develop our actions along two
lines:
(i) The first one is to support and implement regulatory frameworks and supervisory
practices that promote both innovation and the stability of our financial system
Most of the current regulatory framework was designed before the technological "breaks" that we
now face. It therefore seems logical to adapt it to these technological changes and to the
challenges and risks associated with them. The same applies, of course, to our supervisory
framework and methods.
In terms of regulating crypto-assets, France pioneered the establishment of a legal framework in
2019, with two objectives:
Creating legal certainty and trust to promote the development of a healthy and innovative
ecosystem;
Preserving innovation by being careful not to curtail further development opportunities and
risk depriving the economy of beneficial innovations.
With these two objectives in mind, we also support the European project for Markets in
CryptoAssets (MiCA), which will, in particular, provide a first harmonised EU-wide regulatory framework
for stablecoins.
(ii) be involved as a player in financial sector developments
However, adapting the regulatory framework is not sufficient. At the Banque de France, we
believe it is necessary for us to also be a factor in the evolution of the financial sector by pursuing
two objectives at this stage:
to facilitate and experiment.
Under the first objective, one of our aim is, for example, to foster the emergence of European
projects capable of strengthening Europe's payments system, building on the major integration
projects we have seen in the past. Pursuing this objective also leads us to set up a forum, the
Fintech Forum, which brings together players from our national financial ecosystem, to identify
needs for regulatory developments related to innovation.
As part of the experiment, at the Banque de France we are currently conducting a programme on
a digital central bank currency for the settlement of interbank transactions. We want to assess to
what extent and under what conditions it could improve the efficiency and security of settlement
of financial assets transactions, while preserving the fundamental role of central bank money in
the smooth and safe execution of these transactions.
The Banque de France also takes an active part in the work conducted by the Eurosystem under
the aegis of the ECB in relation to a digital retail euro. The challenge is to assess whether and
how a digital central bank euro is needed. As we do when analysing market developments, our
analysis encompasses all the potential impacts of such innovation. We need to ensure that we
do not compromise more general public objectives such as monetary and financial stability,
organise coexistence with other forms of public money and commercial banks, and promote
innovation and efficiency in the financial system.
Naturally, our experiment is not limited to questions of digital central bank money. As part of our
observation on the development of crypto-assets, we plan to participate in market experiments to
help define the role of supervisors in this ecosystem.
I'll stop there to give way to the two round tables of this webinar.
The two themes chosen are: "Crypto-assets, risks and regulation" and "Crypto-assets, what will
become a standard?". They seem to me to be two very complementary ways of addressing the
issues that I have highlighted. I am sure that the cross-section of American and European views
will add to the debate.
I wish you all a great webinar.