Villeroy de Galhau: Digital money, geopolitics reshape global finance
Banque de France Governor François Villeroy de Galhau outlined technological and geopolitical disruptions reshaping the International Monetary System. Speaking at the G7 IMS Conference, he proposed a 'compatibility triangle' of sovereignty, seamlessness, and stability to guide future payments.
Dual forces reshape global finance
Villeroy de Galhau identified two major disruptions.
The first is technological, driven by financial innovations like tokenisation, which can accelerate cross-border payments.
Tokenisation presents a dual force: it could reinforce the US dollar's centrality through USD-backed stablecoins, projected to reach a market capitalisation of USD 500 billion to USD 2 trillion by 2028.
Conversely, it could weaken the USD's international role by enabling exchanges in other currencies.
The second disruption is geopolitical.
Despite the global economy's multipolarity, the IMS remains USD-dominated.
However, recent US policies, including doubts on Fed independence, fiscal discipline, and tariffs, have undermined confidence in USD assets.
This has fueled a gradual diversification trend, with the USD's share in allocated official reserves declining by 5 percentage points between Q2 2020 and Q2 2025.
Fears of USD weaponisation also drive the development of alternative payment systems.
Three pillars for a new payment landscape
Villeroy de Galhau outlined a "compatibility triangle" of three objectives: sovereignty, seamlessness, and stability.
Sovereignty means securing central bank money's role in the digital world, with the Eurosystem planning a digital euro pilot by 2027 and a wholesale CBDC pilot by end-2026.
Seamlessness requires interoperable payment systems to prevent fragmentation, promoting innovations like interlinking fast-payment systems (e.g., Eurosystem's TIPS with India's UPI) and shared ledgers.
Stability addresses risks from expanding stablecoin markets, such as de-pegging.
Europe's MiCA regulation is a start, but further enhancements are needed, especially for non-euro backed stablecoins.
The creation of a euro-denominated safe asset is also crucial.
Agile pragmatism for a new era
The speech highlights the profound transformation of the IMS, driven by both technological innovation and geopolitical shifts.
While the challenges are significant, particularly concerning USD dominance and stablecoin risks, the proposed "compatibility triangle" offers a pragmatic framework for central banks to ensure monetary sovereignty, payment efficiency, and financial stability.
The emphasis on public-private partnerships and agile regulation underscores a necessary, non-ideological approach to harness digital money's promises while mitigating its threats.