The idea of CBDCs has received massive attention from central banks around the world. Earlier today, the Bank of Russia announced its preference for a digital ruble over a private stablecoin. Now, according to reports, Banque de France aims to have a fully operational digital wholesale asset by early 2023.
According to François Villeroy de Galhau, governor of the French central bank, the establishment has already given a green signal for the second phase of experimenting with a wholesale CBDC.
The main purpose of the CBDCs remains to facilitate domestic and cross-border transactions between banks. The first phase of experimentation took place in December 2021 and consisted of the issuance of a digital bond on a blockchain with settlement in CBDC.
A wholesale CBDC; How does it work?
Speaking at the 2022 Paris Europlace International Financial Forum, Galhau said:
“We want to get closer to a viable prototype and test it in the second half of 2022 and in 2023 with more private actors and more foreign central banks. This work puts us ready to bring central bank money as a settlement asset as early as 2023.”
It’s important to note, however, that the term wholesale floated in the announcement. A wholesale CBDC differs from a regular retail CBDC in that it would only be used by financial institutions to exchange fiat currencies.
It is not about public use as a medium of exchange for goods and services. Therefore, at the moment it is only moving towards an institutional CBDC† However, the Central Bank has said it is also investigating a retail CBDC in the future. In addition, the governor added that retail CBDCs will be launched with the help of private banks. He added,
“The Eurosystem should entrust banks with the distribution of digital euros to end-users while establishing technical, functional and commercial rules – for example the branding, logo and fee structure.”
As decentralized digital assets lose popularity under policy markers, central banks are doubling their efforts to build their own digital currencies. In fact, the deputy governor of the Reserve Bank of India went to the extent that CBDC would spell the end of other crypto assets. While it is too early to confirm such an assumption, only time will tell whether CBDCs can affect the potential of the existing digital currencies.