Banque de France positive on its first tests of an official euro-based stablecoin

So far, our relationship with central banks has manifested itself in two main forms: deposits ofmoney on bank accounts, for example when an employer pays his due to employees and the banknotes and coins that we use in everyday life.

These two systems have so far succeeded in gaining wide public confidence. Yet crises such as the one in 2008 led to a disavowal of the banking system. Bank-independent currencies such as Bitcoin or Ethereum have largely surfed on this vague. What is more, the appearance of stablecoins such as Tether’s USDT brought a factor of stability to this sector (for the record a USDT is always equal to a dollar).

The use of official stablecoins to limit the use of cryptocurrencies

For several months, the status of stablecoins has challenged many governments. In the matter, we speak of MNBC (Central Bank Digital Currency) to designate stablecoins issued by a central bank. China and Niger prepare to launch their own MNBC, and for these two countries, this development was accompanied by a policy aimed at limiting the use of other cryptocurrencies. For its part, in the United States, the SEC (equivalent to the Stock Exchange Commission) has been given the task of regulating the status of dollar-based stablecoins. The Biden administration’s task force leans in favor of equating stablecoin issuers with banks.

In Europe, the question did not arise because very few euro-based stablecoins have appeared so far. The European Central Bank is working on a digital euro and for now, it is expected to coexist with Bitcoin, Ethereum and other BNBs.

The big question that remains is: is the public willing to place the same trust in an MNBC as it does on banknotes or checks and credit cards linked to a bank account? To find out more, for nearly a year, the Banque de France has conducted nine experiments relating to payment via this MNBC on large amounts, but also cross-border settlements, currency exchanges and the purchase of securities.

The use of digital currency has become commonplace

First, the Banque de France highlights several points.

• In the euro zone, the use of cash is gradually being reduced. In 2019, it represented 73% of monetary transactions, or 6% less than in 2016.
• At the same time, that of credit cards climbed to 24% in 2019 (5% more than in 2016).
• The recent crisis has accelerated the transition to digital payments.
• In order to resolve some cross-border payment issues, the world Bank and other institutes at the G20 stressed the benefits of an MNBC.

Nine selected test applications

Following a call for tenders on the issue, the Banque de France received 40 proposals applications and selected eight: Jura, Société Générale – Forge, Liquidshare, Iznes … Additional experience was established in relation to the Singapore Monetary Authority. It should be noted that the Banque de France has not imposed any particular technology choice.

Seven of these tests were completed on November 8, 2021. Two of the experiments were carried out on the Ethereum blockchain which is based on mining at “ proof of work »And it turned out that they were heavy consumers of energy. The mutation of Ethereum to a “proof of stake” V2 should reduce this power consumption by a factor of 10,000 but this factor has not yet been the subject of major tests.

In general, and as one would expect, the experiments carried out on blockchains of 1^re generation such as that of Bitcoin have shown their limitations in terms of speed of treatment (from 20 seconds to several minutes).

For the rest, what came out? What good if we stick to what Nathalie Aufauvre, in charge of the program, reports. The essential improvements related to the use of an MNBC concern the following points:

• the development of tokenized financial markets;
• cross-border payments and currency exchanges.

It remains to be seen when the European Central Bank intends to launch this famous digital euro for good, knowing that at the start, the year 2025 was set for a deadline and that it may seem very long. And we may be surprised that the Bank of England, for its part, has hinted that it intended to launch its own MNBC around 2030. Are such delays in line with the speed of innovation that is currently taking place in the sector of cryptomonnaies ?