Bundesbank President: Central Banks Should Be Mindful With Blockchain Technology and CBDCs

At the moment, all the world’s countries have a financial system primarily supported by an official fiat currency normally produced, regulated and controlled by the various central banks.

Generally, most governments and central banks support the full adoption of a cashless society to create ease, control the use of liquid cash and also to ensure the security of citizens’ funds.

However, with the continuous and impressive spread of digital assets and their many advantages and uses, everyone – including Central Banks – is studying the possibility of using these cryptocurrencies. In some places, these central banks are now exploring their own decentralised digital assets known as a Central Bank Digital Currency (CBDC).

Be Careful With CBDCs

A while ago, the Bank for International Settlements (BIS) completed a survey which reported that 70% of the 63 participating central banks were currently and quite actively pursuing the possibility of a CBDC.

However, regardless of all the “good press” digital assets are currently enjoying, – so much so that Central Banks want their own – some people have advised significant caution and one of such people is Hens Weidmann, the president of the Deutsche Bundesbank – the Central Bank of Germany.

During the inaugural ceremony of the Bundesbank Symposium held in Frankfurt, Germany, Weidmann expressed concerns about the effects of extensive use of a CBDC. According to him, the use of CBDCs could have very severe implications. Weidmann explained that using a CBDC could cause a sharp change in the current demand pattern as it relates to cash. He said:

“…the demand for digital central bank money could be greater or more volatile than that for cash, with corresponding effects on the central bank's balance sheet.”

Weidmann also mentions that another one of the “serious consequences” that could stem from using a CBDC is that “in a crisis, financial stability may be more vulnerable than it is today.”

He also tried to explain that before a CBDC is officially issued, there should be more than enough certainty that the drastic change that will shift the regular process being upheld today, can be properly handled. Weidmann believes that the new system could:

“fundamentally change the business models of banks and the intermediation in financial markets.”

Deutsche Bundesbank and Blockchain Technology

Weidmann also spoke about the bank using blockchain technology for cash transactions. The project was a collaboration between the Central Bank of Germany and Deutsche Börse, the German stock exchange and it birthed a blockchain technology solution to help ease the process of settling securities and cash.

However, the president noted that the solution was not a success and did not improve the process significantly.

In fact, the deployed solution was more expensive and surprisingly even slower, saying that “compared to the systems currently in use, the blockchain solutions did not fare better in every way”. Hens Weidmann also went further to say that:

“Similar experiences have been made elsewhere in the financial sector. Because despite numerous tests of blockchain-based prototypes so far, the real breakthrough [for actual] application is missing. Although the new technology has a promising future, it still needs further development for use in practice.”

This was probably directed to the numerous central banks all over the world who are researching the use of blockchain technology not only for CBDCs but also for other solutions as well.

Get Daily Headlines

Enter Best Email to Get Trending Crypto News & Bitcoin Market Updates

What to Know More?

Join Our Telegram Group to Receive Live Updates on The Latest Blockchain & Crypto News From Your Favorite Projects

Join Our Telegram

Stay Up to Date!

Join us on Twitter to Get The Latest Trading Signals, Blockchain News, and Daily Communication with Crypto Users!

Join Our Twitter

Add comment

E-mail is already registered on the site. Please use the Login form or enter another.

You entered an incorrect username or password

Sorry, you must be logged in to post a comment.
Bitcoin Exchange Guide