At the beginning of the year we predicted that UK and EU authorities would look at central bank digital currency (CBDC) solutions. We didn't have to wait long!
Earlier this week, Denis Beau, First Deputy Governor of Banque de France, highlighted that, in close cooperation with market professionals, the bank will conduct experiments with a view to integrating CBDC into the procedures for exchanging tokenised assets. In this respect, a call for projects will be launched at the end of March 2020.
A number of capital market players have experimented with digital assets and distributed ledgers. The missing link to scaling these experiments - to fully realise the cost and efficiency gains - has been a digital equivalent to central bank currency. Without digital currency on the ledger, the settlement of trades still involves a number of counterparties and processes, and the marginal efficiencies gained do not justify the investment needed to move to a new trading and settlement equilibrium.
This announcement from Banque de France along with the BIS CBDC working group initiatives will accelerate innovation and wider efforts to develop a market for digital assets.
In the exercise of their supervisory mandate, central banks can contribute ....as a catalyst and a provider of settlement services in central bank money.