Jens Weidmann, the president of the Deutsche Bundesbank clearly stated his opposition on CBDCs (Central Bank Digital Currencies), stating that they will disrupt the entire financial system and banking operations.
Weidmann, in his speech at the “Payment systems and securities settlement in Germany in 2019” symposium on the 29th of May 2019, said that the use of CBDCs could have
Discussions and debates on CBDCs have however been very popular recently.
Vitas Vasiliauskas, the governor of Lithuania's central bank recently spoke about the significance CBDCs could have on the BIS (Bank of International Settlements).
Though the BIS, Vasiliauskas, and Weidmann may support digital tokens, they are against the issuance of cryptocurrencies like Bitcoin (BTC).
The Third Type of Money
In a recent speech, describing the current financial system, Vasiliauskas said:
“Under the current financial architecture central banks issue two sorts of money: currency in circulation in the form of the good old banknotes and coins, and digital money, available as reserve or settlement accounts with the central bank,”
So CBDCs will be the newer, more efficient, ‘third' type of money, “Some argue it could be run on a distributed ledger,” which is an advantage to any sort of currency, he said.
“In such a case, it would replace or complement reserves at the central bank with a restricted-access digital token.”
In addition, he said
“A token would be a bearer asset, meaning that during the transaction the sender would transfer value to the receiver, without intermediaries. This is something fundamentally different from the current system in which the central bank debits and credits the accounts without transferring actual values.”
In spite of the merits of CBDCs outlined by Vasiliauskas, the President of Germany's central bank still expressed his opposing view:
“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.”
Adding that the demand for central bank digital currencies could be
“greater or more volatile than that for cash, with corresponding effects on the central bank’s balance sheet.”
However, he states that he believes in the development of up-to-date technology
“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.”
Blockchain Tech is Slow and Expensive
Jens Weidmann, also described blockchain technology as ‘slow and expensive' and the Deutsche Bundesbank's trial project for the integration of blockchain tech failed woefully.
“The blockchain solutions did not fare better in every way: the process took a bit longer and resulted in relatively high computational costs. 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.”
While the popularity and adoption of digital currencies are still on the rise globally, most central bankers don't quite accept it yet. However, CBDCs talks and debates are still very common. The future of Central Bank Digital Currencies is still very much in the balance.