The incoming payment revolution and the future of central banking: Lessons from the history of the Banque de France

Usually we read lessons of history on central banking  from England or US.

This lesson is from France by Maylis Avaro and Vincent Bignon. It shows how Banque de France opened its liquidity window to non-banks and yet did quite well:

The payment landscape is changing. Rapidly. More payment operators are non-banks who propose e-solutions to make payments both online and in real life. Some are big players, such as the ‘Big Four’ tech companies, and others are much smaller start-ups (Committee on Payments and Market Infrastructures 2015). These changes are creating a more decentralised payment landscape, qualified by some as a revolution in payments (Coeuré 2019, Mersch 2019). 

Technologies have changed, but the pattern looks strikingly familiar to the students of European monetary history. To them, there is no natural law tying the payment instruments with their operation by the banking system. From the Middle Ages to WWI, the most common payment instrument outside coins and banknotes was operated by both banks and non-banks (Van der Wee 1977). Similarly, banks and non-banks alike will operate e-payments. This makes history an interesting source of inspiration to search for institutional solutions in order to fix the impact of the payment revolution on financial instability caused by a lack of access to emergency liquidity assistance.

In recent work (Avaro and Bignon 2019), we explore the implications of this more decentralised and less banked payment landscape for the design of central banks’ interventions when fighting financial crises. We take the example of the Banque de France because Bignon and Flandreau (2018) show that it was especially successful in taming financial and banking panics. We add that this was achieved in a situation of significantly unbanked payments in which non-banks represented half of the borrowers at the Banque de France discount window.


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