Libra's opponents! Can the French central bank's digital currency stimulate the European economy?

France to test its central bank digital currency in Q1 2020

The Bank of France plans to pilot a central bank digital currency (CBDC) for financial institutions in 2020, Bank of France Governor François Villeroy de Galhau has announced.

The Bank of France confirmed the news on Twitter, noting that the decision was made at a meeting jointly hosted by France's two major financial regulators, the Prudential Supervision and Resolution Authority and the French financial industry.

French financial publisher Les Echos released its first quarter report of 2020 on December 4. According to the report, the digital euro pilot will only target financial sector participants and will not involve personal retail payments. The report said that the plan is to improve the efficiency of the French financial system while also ensuring people's trust in the currency.

Libra may smell the rose, but a tiger is still a tiger

Villeroy said the project is also intended to protect France from losing its sovereignty over supranational digital currencies such as Libra.

Villeroy's position is consistent with previous statements by French Finance Minister Bruno Le Maire, who said regulators would not allow Libra to grow on European soil due to monetary sovereignty issues. According to previous reports, France, Germany, Italy, Spain and the Netherlands have led the anti-Libra movement.

Coincidentally, after Libra released its white paper in June, the People's Bank of China has frequently spoken out, continuously releasing signals that DCEP will be issued soon, and announced a series of details. Although it has not been officially issued yet, it is currently preparing to select a site for pilot testing, and I believe it will meet with everyone soon.

Since the concept of Libra came out, it has caused a lot of controversy. In the past six months, there have been discussions about Libra almost every day. Whether in Europe, the United States, Asia, or Africa, governments have expressed their respective attitudes. Why does Libra have such a great influence? Because it aims to be a global payment system, anchored by international currency. Any country can use Libra to pay for transactions, and there is no need to open an account, making transactions convenient. Although Zuckerberg said sincerely that Libra is just a payment system and inclusive finance, allowing more than one billion people around the world who do not have bank cards to easily use Libra to realize cross-border transfers. Not to mention regulatory loopholes and money laundering risks, if Libra successfully "takes over", the result may be the complete loss of the country's monetary sovereignty!

1. In some countries where the government credit and monetary system are close to collapse, such as Argentina, Turkey, Venezuela, Zimbabwe, etc., if the governments of these countries are not trusted, that is, people no longer believe in their own currencies, the currencies will depreciate, and the currency depreciation will cause the monetary system to further collapse. If a more trustworthy institution or organization appears at this time, it can ensure the stability of the exchange rate and value of the currency, and people’s hard-earned money will not depreciate or inflate in large quantities. If it were you, which one would you choose?

People sell their own currencies as bad money, causing the legal tender to depreciate further, but store Libra, a good currency with more stable value. This is "bad money drives out good money". Over the years, no one will use legal tender anymore. The government will not only lose its credibility, but also its monetary sovereignty. What is the difference between a government without monetary sovereignty and a puppet?

2. Countries with complete and credible monetary sovereignty also have concerns. After all, Libra is issued by an association of different companies. Although the Libra Association has a huge user base, it is not endorsed by any country, so the risk is relatively high. The entry of Libra does not rule out the possibility of disrupting the financial market and affecting the country's regulation of the economy. The biggest hidden danger is that the right to mint coins is not in their own hands, which is prone to uncontrollable factors, such as malicious short selling and unlimited issuance.

Therefore, in addition to regulatory issues, Libra must also handle its "relationship" with the country's legal currency.

If Libra is so dangerous, why not just deny it? Why do we need to hold hearings to debate it? The fact is that Libra does have its own advantages, such as simplifying the transaction process, improving the capital circulation rate, inclusive finance, and low handling fees. You are afraid of being "swallowed" by Libra, but you also want to get closer to it. When you stare into the abyss, the abyss is also staring at you. What should you do? Don't stare, just issue your own currency.

New hope for Europe

Villeroy called on France to become the first country in the world to issue a CBDC. According to a tweet from the Bank of France, its governor stressed that France should be the first country in the world to issue a CBDC and provide a model for other jurisdictions. He said: "I am very interested in the rapid development of at least one central bank digital currency in order to become the world's leading issuer"

Meanwhile, the French government has initiated and encouraged many industry-related projects, and in late November, the first deputy governor of the Bank of France called for the establishment of a blockchain-based settlement and payment system in Europe. In addition to the development of blockchain, France has also become the country with the most BTC use. In mid-October, French cryptocurrency startup Keplerk relaunched its services to accept Bitcoin payments at more than 5,200 tobacco shops in France, after at least 30 French retailers planned to support Bitcoin payments at more than 25,000 sales points by early 2020.

It can be seen that France is still very open to blockchain and CBDC. Since it is going to issue legal digital currency, it must be anchored to the national currency. So what is the French legal currency? Since January 1, 2002, residents of the European Union no longer have to exchange currencies due to the use of the euro. This new currency circulates among 12 countries in Europe (each country's national currency is no longer used). France is a euro country. If France wants to launch a CBDC, it must be anchored to the euro.

Therefore, the launch of CBDC in France is not just a matter for France alone. It is necessary to reach a consensus with other Euro countries and pass supervision before it can be successfully issued. Whether this possibility is high depends on France's status, voice and appeal in the EU.

The most intuitive manifestation is economic strength. The above picture shows the world's top 10 GDP countries according to the International Monetary Fund in 2018. The European country France ranks after Germany and the United Kingdom.

In 2016, the UK withdrew from the EU, which means that the UK has withdrawn from the competition for European leadership. The position of the European leader should be determined between Germany and France. Compare France and Germany:

1. In terms of population, Germany has 83 million people and France has 67 million people. Population is the labor force, the driving force of consumption, and the creator of wealth. In terms of population, the most basic factor in comprehensive national strength, Germany wins.

2. In terms of land resources, Germany has an area of ​​350,000 square kilometers and France has an area of ​​670,000 square kilometers. In peacetime, especially for developed countries, the significance of land is mainly natural resources. Both countries are very poor in natural resources, so they are tied in this regard.

3. In terms of economic development, Germany's GDP is $400 million, while France's is $279 million. In terms of economy, Germany wins.

4. In terms of political influence, France is one of the five permanent members of the Security Council and has higher global influence than Germany. In terms of politics, France wins.

5. From the perspective of military strength, there is no need to compare this item. Germany was a defeated country in World War II and its military strength was limited, so France wins.

In fact, the Euro countries are nothing more than France and Germany, the first and second. It is not important which one is stronger. What is important is whether CBDC can bring financial revolution to the Euro in the digital economy era, thereby expanding the international influence of the Euro. Why France is eager to launch CBDC in the first quarter of next year is because the first country to launch CBDC is more likely to seize the initiative in addition to its demonstration effect. Any transaction is a business, and where there is business there is a market. The future digital economy war is not a competition of increments, but a competition of stock. Whoever gets the market initiative first will be more likely to develop, and the same is true for CBDC.

With the slowdown of Germany, the "locomotive" of the European economy, the high risk of Brexit, and the unresolved debt problem of Italy, the road ahead for the European economy is still full of difficulties. Let us wait and see whether France can break through the siege with the help of CBDC and lead the European economy back to its peak.