There were some interesting remarks early Wednesday from the Banque de France’s governor, François Villeroy de Galhau, on everyone’s favourite monetary revolution (or evolution, depending on who you ask). That is, the creation of central bank digital currencies (CBDCs).
Via Bloomberg’s European Central Bank reporter Carolynn Look (emphasis ours):
China’s rapid progress in developing a digital yuan poses a key risk in preserving the euro’s international role, said European Central Bank Governing Council member François Villeroy de Galhau . . .
. . . Villeroy identified “the progress made by extra-European CBDCs and notably by the digital yuan” as part of a “triangle of risks” challenging the ECB’s control over payments. He also highlighted the declining use of cash and the rise of cryptoassets.
As Look points out, this is the first public acknowledgment that the push for the ECB’s own brand of CBDC, the digital euro, owes something to fears that the People’s Bank of China is about to snatch a first-mover advantage. It’s currently piloting the e-yuan and looks set to become the first major central bank to launch a CBDC.
Up until now, the official ECB line has been that launching a eurozone CBDC is about challenging Big Tech, not warding off geopolitical threats.
But does the Banque de France governor have a point?
We’re sceptical this is quite as much an issue as Villeroy is making out.
To our minds, China’s e-yuan is more about prising control over payments systems (and the potential to offer customers credit) from Alipay and WePay than it is a shot at global monetary hegemony.
We’d add that a bigger barrier to the eurozone’s internationalisation is that the single currency area lacks a financial asset to underpin its capital markets. There’s no rival to the market for US Treasuries for liquidity and sheer size — and until there is, the euro won’t make significant inroads in rivalling the dollar. Simple as.
We do think there is a geopolitical advantage to having your own digital currency that can be used internationally. But the issue is more one of making oneself less beholden to the US, not China.
If the ECB was able to facilitate cross border payments with an infrastructure built around a digital euro, then the region might find itself able to avoid the same fate as Germany did back in 2018, when it was forced to bow to US pressure and cut access to €300m held by an Iranian lender at the Bundesbank. The centrality of the Society for Worldwide Interbank Financial Telecommunication, or SWIFT, in facilitating global payments (and US influence over it) has been key in maintaining Washington’s influence. We imagine that a capacity to sidestep SWIFT and US sanctions is something that might have interested a few people in Beijing too.
Still, our fear is more that the ECB will use this supposed China threat as a means to rush out a digital euro. Villeroy in the past has made no secret of his desire for a CBDC. He’s far more of a fan than his counterpart at the German central bank, Jens Weidmann, for instance. Increasingly, we think he’s far more likely to get his way than the Bundesbank head too.
Anyway, these are our two cents on the topic. Delivered digitally, of course. Yours in the usual place.
Related links
CBDCs now seem a matter of when not if — FT Alphaville
Is the central bank panic about the PBOC coin justified? — FT Alphaville
Is our money about to spout memories — FT Alphaville
Crackdown on Ant Group will be echoed elsewhere — FT Alphaville
Source: Economy - ft.com
