Europe’s sovereign monetary order is in danger if plans for a digital euro and a European payment system are not implemented, the governor of the Bank of France said on Wednesday.

Over 30 European banks are currently working to create a direct payment and card system to compete in a market currently dominated by foreign companies such as Visa and Mastercard.

With the COVID-19 pandemic driving consumers away from cash and big tech companies entering the market, Francois Villeroy de Galhau, governor of the Bank of France, said the time to create a new infrastructure is very short and will probably only take a year or two.

Some banks are afraid to invest in a new payments infrastructure when the European Central Bank unveils plans for a new digital currency to be used by their retail customers.

“On both digital currency and payments, we in Europe must be ready to move as quickly as needed or risk an erosion of our monetary sovereignty – something we cannot tolerate,” Villeroy said at the Europlace conference in Paris.

With 90 per cent of the world’s central banks working on digital currencies, concerns have been raised that these currencies could drain money from existing bank accounts. Morgan Stanley estimated earlier this month that the digital euro could take 8 per cent of deposits from bank customers in the Eurozone.

Villeroy said they are not replacing banks, but are being used to distribute central bank digital currency (CBDC) at retail and wholesale, making transactions easier and safer.

“In short, the scenario of a CBDC causing massive bank disintermediation is more a finance-fiction fantasy than a serious analysis,” Villeroy added.

The Bank of France has already conducted five CBDC tests with public and private financial institutions and plans to conduct four more by the end of the year.