Denis Beau: The perils and potential of digital currencies Introductory remarks (virtual) by Mr Denis Beau, First Deputy Governor of the Bank of France, for the panel discussion on "The perils and potential of digital currencies", at the RAID (Regulation, Artificial Intelligence, Internet & Data) Digital 2023 on "Bridging Parallel Lines", 3 May 2023. *** In order to set the scene, let me: Put CBDC and stablecoins discussions and developments into the broader perspective of the transformation underway of financial services and of the financial sector. Highlight the regulatory and supervisory issues they raise from a central banker perspective, from the perspective of an institution in charge of ensuring monetary and financial stability. To do this, I would like to make three points: First, CBDC and stablecoins are the prominent and most publicized output of the 3 major disruptions of finance that digital technologies are bringing about, namely: The arrival of new players, big techs and fintechs, which to date, have been subject to little or no regulation. The emergence of new forms of investment and settlement assets in tokenized form, usually referred to as crypto-assets. Bitcoin is emblematic of a first generation of highly volatile cryptos, whose use remains essentially speculative. The second generation, stablecoins, aims to provide a broader range of services possibly with a global reach, with the support of mechanisms to stabilize their value against sovereign currencies. The emergence of decentralized market infrastructures, based on DLT and blockchains in particular.
6  7  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  7  A related point is that not all reductions in uncertainty are beneficial. In particular, guaranteeing what firms themselves see as the worst case outcome (in the simple model that would mean setting q = λ = 1) is unlikely to improve matters even if it “resolves the uncertainty”. Quite the opposite: it would mean only that projects that have so far been postponed, precisely for fear of such an outcome, would then be cancelled for good. Another set of implications arises from the expected duration of the uncertainty (E[T] = 1/q). It’s helpful in this respect to re-express [2] as follows: E[T] (R – ρ) ≥ λL  [3]  Writing the result this way makes its interpretation that much more intuitive. On the right-hand side is the benefit of waiting until the event is realised, i.e. the (probability-weighted) loss the firm could thereby avoid. On the left-hand side is the cost of waiting, namely the excess return the investment would earn in the meantime. And the longer the wait (the higher the expected duration of the uncertainty E[T]) the greater the foregone income is likely to be. If the firm expects a really long delay before the news comes through (high E[T], low q) it might well decide it just has to get on with things and make the investment anyway.