French central bank to start tests on digital currency

France's central bank will next year launch a call for projects to develop a digital currency, its governor said Wednesday, as concern grows among EU governments over new currencies planned by Facebook and others.

"We want to start running experiments rapidly and will launch a call for projects before the end of the first quarter of 2020," said Bank of France governor Francois Villeroy de Galhau, saying central banks had to meet the challenge of the possible creation of a central bank digital currency (CBDC).

The initiative by the French central bank is the first such by a eurozone central bank, with the ultimate aim to develop a digital euro that would be based on blockchain technology.

Galhau said developing such a currency would respond to desire among citizens - especially in countries where the use of cash is declining - to access central bank money. "A CBDC would help to preserve the trust in the financial system that stems in part from being able to exchange assets for legal tender."

"We as central banks must and want to take up this call for innovation," he said.

Galhau said this was particularly crucial at a time when "private initiatives - especially payments between financial players - and technologies are accelerating, and public and political demand is increasing." He made clear that the central bank will work with "industry innovators from the private sector" to develop the currency.

France has led European scepticism about the development of Facebook's planned Libra cryptocurrency, arguing it threatens the monetary sovereignty of governments. Facebook unveiled in June its plans for Libra in an announcement greeted with concern by governments and critics of the social network behemoth whose reputation has been tarnished by its role in spreading fake information and extremist videos.

Galhau emphasised that the work on the central bank digital currency would be of benefit to the whole eurozone and eventually could lead to a an "e-euro". "Our actions will naturally contribute to the work of the Eurosystem, which should make looking into the possibility of an 'e-euro' one of its next focuses," he said.