- President Jens Weidmann is wary about central bank digital currencies.
- The central bank and Deutsche Börse are collaborating on a blockchain-based cash and securities settlement platform.
Deutsche Bundesbank, the German central bank, president Jens Weidmann has stated that central bank digital currencies (CBDC) could destabilize financial systems and worsen bank runs. Weidmann said in a speech at the opening of the Bundesbank Symposium in Frankfurt that the widespread use of digital central bank money could have “serious consequences” and should not be introduced without any proper plan.
Weidmann noted that easy access to digital money could worsen bank runs in times of emergency. He said:
“In a crisis, financial stability may be more vulnerable than it is today, with digital central bank money very liquid and secure investment alternative. Therefore, both ‘escape to safety’ in general and a digital bank run, in particular, could take place faster and to a greater extent than in the past.”
He also pointed out that:
- The demand for CBDCs could be “greater or more volatile than that for cash, with corresponding effects on the central bank’s balance sheet.”
- A CBDC could also bring a significant shift in the business models of banks, as well as in intermediation of the financial markets.
Weidmann concluded:
“I see ourselves [the Bundesbank] as having the duty to offer citizens modern, fast and also internet-enabled means of payment. The idea is to develop solutions that are up to date with the latest technology without incurring unnecessary risks to financial stability. The carelessness of Epimetheus and Pandora urges us to be careful.”
Weidmann also opened up about a collaboration between the central bank and stock exchange operator Deutsche Börse on the use of blockchain technology for the settlement of cash and securities. He stated that the blockchain solutions did not function better in every way, while the process took a little longer and resulted in relatively high computational costs.
He said:
“Similar experiences have been made elsewhere in the financial sector. Despite numerous tests of blockchain-based prototypes, a real breakthrough in application is missing so far.”
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