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Digital Currency Can Destabilize The Financial System: Central Bank of Germany

Hiro Lama by Hiro Lama
June 5, 2019
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Digital Currency Can Destabilize The Financial System: Central Bank of Germany
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(BlockBar) The head of the central bank of Germany, Jens Weidmann, has said that digital currencies could destabilize financial systems and worsen bank runs. Deutsche Bundesbank president also said that the widespread use of digital central bank money could have “serious consequences”. He mentioned that it should not be introduced without well thought through.

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 further explained that demand for CBDCs could be “greater or more volatile than that for cash, with corresponding effects on the central bank’s balance sheet.”

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He also added that even in the good times, a CBDC could bring a fundamental shift in the business models of banks, as well as in intermediation of the financial markets. He concluded his thoughts by saying: “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 shared details of a joint project  on the use of blockchain technology for the settlement of cash and securities between the German central bank and stock exchange operator Deutsche Börse. According to him the blockchain solutions did not perform better in every way, while the process took a little longer and resulted in relatively high computational costs.

He explained: “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.” To be noted, a growing number of global central banks are investigating blockchain and distributed ledger technology. According to a report from the World Economic Forum more than 40 central banks worldwide are experimenting with the technology.

Tags: central bankcryptodigital currencygermany
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John Danie

John Danie is a highly experienced marketing strategist and businessman in the blockchain industry who likes the pace of the development of cryptocurrency, especially in blockchain technology where it can move so fast. Being a fintech writer and crypto reporter with a fascination for tech and a passion for starting interesting conversations, he seeks to create authentic news stories in the industry.

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