Bank of France to experiment with its central bank digital currency

• The Bank of France will be conducting experiments to test the integration of a central bank digital currency for interbank settlements.
• Through the experiments, the bank is aiming to identify the potential benefits and risks associated with CBDC.

The Bank of France is launching a series of experiments to test the integration of a central bank digital currency (CBDC) for interbank settlements. It is inviting interested participants to submit their applications. According to an official document, the bank is planning to experiment with digital euro and explore the potential CBDC use cases for clearing and settlement of tokenized financial assets. 

The central bank will be choosing a maximum of ten CBDC-related applications (individuals or groups). “Innovative nature” is said to be the main criteria for the selection process. Applications must be submitted by European Union-based applicants or in a state party to the European Economic Area agreement. The deadline for submitting applications is May 15, 2020, and the selection of applications will take place on July 10, the bank announced.

The CBDC experiment by the French central bank has three objectives – modeling CBDC-based interbank settlements, exploring benefits and identifying potential risks. The bank also outlined three potential CBDC use cases – payment against financial instruments, payment against other central banks’ digital currency and payment against digital assets.

The central bank highlighted that it will not be engaging in money creation within the upcoming experiment and will be destroying the token reflecting the amount in euros in digital form at the end of the accounting day on which payment was done. There are also currently no plans to apply this on a larger scale.

These experiments will act as a contribution by the Banque de France to a broader discussion within the Eurosystem, which will make any decision on whether to set up a CBDC. The tests are not intended to be continued on a long-term basis or applied on a wide scale by the Banque de France itself.