Jens Weidmann Warns that Digital Currencies Could Potentially Worsen Financial Crises in The Future.
The president of Germany’s Bundesbank, has stated, in his personal opinion, that ‘instant payments’ would put an end to the public interest in digital currencies like bitcoin. Germany’s top central banker was speaking in Frankfurt today in a speech predominantly on the European Central Bank’s quantitative easing (QE) program when he touched on the subject of digital currencies.
Wiedmann, claimed that the ongoing digitization of finance is and will remain the most significant challenge faced by central banks. He offered a solution toward taking on popular growing financial technologies like bitcoin and other digital currencies.
“My personal take on this is that central banks should strive to make existing payment systems more efficient and still faster than they already are – instant payment is the buzzword here. I’m pretty confident that this will reduce most citizens’ interest in digital currencies,” He stated, as reported by the Financial Times.
Wiedmann admitted that making a move toward digitization which would, according to the central banker, provide citizens with the reassurance that their money would be safe. In doing so, however, Wiedmann claimed that private banks would risk bank runs during times of future crises. A bank run occurs when a large number of customers panic to make withdrawals from financial institutions at the same time.
“Allowing the public to hold claims on the central bank might make their liquid assets safer, because a central bank cannot become insolvent. This is a feature which will become relevant especially in times of crisis – when there will be a strong incentive for money holders to switch bank deposits into the official digital currency simply at the push of a button. But what might be a boon for savers in search of safety, might be a bane for banks, as this makes a bank run potentially even easier,” Wiedmann said.
The central banker is a known critic of digitization brought on by financial technologies, questioning the promise of FinTech revolutionizing financial services and infrastructure earlier in March this year. Meanwhile, the Bundesbank has been developing a blockchain-based settlement infrastructure system, based on a concept of the open source.
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