Germany is one of the countries that has stayed on top of the crypto space regulation landscape for a considerable amount of time until now. There is a lot of interest in cryptocurrencies and related digital assets in this stable and powerful European nation.
This week, the chief at the Nation’s Central Bank has stated that central bank digital currencies represent a sizable risk, and he has warned people about some of those situations in an attempt to protect their interests and resources. He says that they could destabilize financial systems and make bank runs worse.
Jens Weidmann spoke at the opening of the Bundesbank Symposium in the city of Frankfurt, Germany, this week. He observed, inter alia, that the widespread and global use of digital central bank money may have “serious consequences.” He advises people to think things through before entering the activity.
The president of the Deutsch Bank predicts that easy access to these assets could make bank runs in times of crises more notable. “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.”
Additionally, he said that demand for CBDCs (the term to refer to Central Bank Digital Currencies) has the potential of being “greater or more volatile than that for cash, with corresponding effects on the central bank’s balance sheet.”
Modern Means of Payment
As the official notes, there could even be issues for people when things are going well regarding CBDCs, as they can change business models of banks and significantly alter financial markets.
According to Weidmann, “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,” he also stated on a similar note.
The timing of Weidmann’s comments aligns with several other nation’s attempts to investigate about the blockchain and distributed ledger technology. For instance, over 40 central banks are now experimenting with the technology.
An Alternate Project
Frankfurt’s Bundesbank Symposium also helped Weidmann talk about a joint venture of the country’s central bank and Deutsche Börse, the nation’s stock exchange operator, involving the world-changing blockchain technology.
To be more specific, the project involves using the blockchain technology and its advantages to settle cash and securities.
According to the official, the project had to endure elevated computational costs and, as a result, it took a little longer than anticipated.
“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,” he expressed in the same speech.
By Andres Chavez