The official maintains that there are other issues to resolve before thinking about the digital euro. It considers that it would be more appropriate to improve the existing payment systems.
Burkhard Balz, a member of the board of directors of the Central Bank of Germany, guaranteed that the development of the digital euro generates more questions than answers. This announcement saw light during his virtual speech at the Financial Summit between China and the European Union.
Balz explained that, despite their possible use cases, he sees several risks in these digital currencies (also known as CBDCs) among which the digital yuan stands out, which is in an advanced stage of development.
Besides, he also said that, unlike the Chinese ecosystem, some issues still need to be solved in the Eurosystem before the Central Bank decides to implement a digital euro. It is that, as explained, “Chinese payment behavior is already characterized by the strong use of innovative mobile payment methods.”
The risks of central bank digital currencies
Balz detailed some of the risks he sees in these types of currencies. Among some of them lays the possibility that its acquisition is available to foreigners. “It could result in a revaluation of the currency itself, but it can also generate fears about the monetary sovereignty itself being affected,” he said.
According to him, if digital currencies are implemented, “close and open cooperation between the world’s major economies” would be necessary, so that fears like this do not harm national economies.
Balz also referred to possible “digital bank runs.” “What would happen if, in times of crisis, bank deposits were quickly withdrawn and turned into a digital euro?” He asked himself and answered: “The result could be the destabilization of the entire financial system.”
To avoid this, Balz considers that tools will be there” to ensure that a digital euro is used primarily as a way of payment, but not as a store of value”. He added that “one option to investigate would be to allow users to hold digital euros only up to a threshold at any given time.”
As a final negative, Balz indicated that in case cash turns to be eliminated, some parts of society could suffer a complete exclusion from the financial system. Anyway, this would not be a problem if they follow the guidelines of the current president of the Central Bank of Europe. For her, the digital euro should not replace cash but rather complement it.
“Digital currencies are not a panacea”
Balz is no stranger to the benefits that digital currencies would provide to governments and banking institutions. As reported by CriptoNoticias, the direction in which the development of these types of currencies is progressing. It also aims to give the State greater control over how the inhabitants use their money. Its implementation seeks to reduce money laundering and tax evasion.
These bank currencies, although they share some characteristics with Bitcoin, would differ from this cryptocurrency in that they will not provide privacy to their users, they are not decentralized, and operations can be blocked with a court order.
In any case, the director of the German Central Bank considers that there are better alternative options to the creation of a digital euro. “Central bank digital currencies are just one of several non-exclusive options, some of which may be more obvious or easier to implement,” he explained.
Among these alternatives “without the possible undesirable implications” he mentions the possibility of improving conventional payment systems, both nationally and globally. “In this sense, we support the market in the development of a pan-European payment solution with the full deployment of the new instant payment infrastructure.”
By: Jenson Nuñez.
