François Villeroy de Galhau, Governor of the Banque de France, spoke today about how central bankers should react to blockchain developments. He spoke as President of BIS, introducing the BIS Innovation Summit.
The governor recognized blockchain’s ability to cut out middlemen and create new solutions. “Are these disruptions as powerful as those brought about by the invention of the Internet three decades ago? He asked. “It may be too early to tell. But DLTs are growing at a rapid pace and have the potential to bring far-reaching change.
Like most central bankers, Villeroy de Galhau dismissed Bitcoin as having only marginal use as a means of payment and questioned its credentials as a store of value, comparing it to 17th-century Dutch tulips. He compared stablecoins to the first private banks that issued their own notes.
However, the governor was keen to stress that neither he nor central bankers are against progress.
“While our mandates fully enshrine stability, resisting innovation is not in our DNA,” he said. “On the contrary, financial stability without innovation would be synonymous with conservatism. And innovation without financial stability would fuel mistrust and would therefore be unsustainable.
Thus, to find the rightful place for central banks in an emerging DLT world, Villeroy de Galhau argues that central banks must simultaneously innovate and regulate.
He pointed out that most crypto-asset business is done through new intermediaries. “DeFi could be a misnomer while leading to (the) concentration of some unregulated private players, at least for now,” said Villeroy de Galhau.
In terms of regulation, he cited the oft-cited need to have the same activity, same risk, same rule. And applying that to the DLT industry, there needs to be equal security, compliance, accountability, and accessibility.
When it comes to central bank digital currencies (CBDCs), these should not be seen as a threat. “The CBDC is not the big brother of central banks that threatens the free world of decentralized finance,” the governor said. “Let us refuse these two caricatures. Rather, the CBDC could be about providing other tools to help make DeFi successful, and yes, sustainable.
He mentioned the wholesale CBDC work of the Banque de France and its participation in the Jura and Dunbar cross-border CBDC projects. Although France was not previously mentioned as a participant in Dunbar, last year it was involved in a payment trial with the Monetary Authority of Singapore (MAS), which launched Dunbar.
The Governor concluded with a quote from Zaha Hadid, the award-winning architect known for her curved buildings: “There are 360 degrees, so why stick to one?