Europe’s sovereign control over its money is at risk if it does not push ahead with plans for a digital euro and a European payments system, France’s central bank head said on Wednesday.
More than 30 European banks are currently setting up a retail system for instant transactions and payments cards to compete in a market currently dominated by foreign firms such as Visa and Mastercard.
With the COVID-19 pandemic encouraging consumers to abandon cash and big tech firms moving into the market, Bank of France Governor Francois Villeroy de Galhau said time was running out to set up new infrastructure, with perhaps only a year or two left.
Some banks are concerned about investing in new payments infrastructure if the European Central Bank moves ahead soon afterwards with plans for a new digital currency that could be used by their retail customers.
“On both digital currency and payments, we in Europe must be ready to move as quickly as needed or risk an erosion of our monetary sovereignty – something we cannot tolerate,” Villeroy told a Paris Europlace conference.
With 90% of the world’s central banks now working on digital currencies, concerns have emerged that they could drain money away from existing high street bank accounts. Morgan Stanley estimated this month that a digital euro could siphon away 8% of euro zone banks’ customer deposits.
Rather than supplanting banks, Villeroy said they would be used to distribute the central bank digital currency (CBDC) at the retail level and at the wholesale level it could make settling transactions easier and safer.
“In short, the scenario of a CBDC causing massive bank disintermediation is more a finance-fiction fantasy than a serious analysis,” Villeroy added.
The Bank of France has already conducted five test runs with CBDC with public and private financial institutions and has plans for four more before the end of the year.