Central German bank cautions over rolling digital central bank money

Thursday 30 May 2019 00:58 CET | News

Bundesbank President Jens Weidmann has warned central banks to exercise caution in introducing digital currencies that could potentially destabilise the financial system during times of crisis.

The warning came in the light of Swedish Riksbank’ s e-krona pilot scheme, a potential response to the rapid decline in the use of cash.

Easy access to digital money could exacerbate bank runs in times of crises, leading to a faster collapse of lenders, and that even in good times it would fundamentally change the business model of banks, Reuters cited Weidmann, an influential voice on the European Central Bank’s Governing Council.

He also warned that easy access could increase volatility in demand for the digital money, which would have an immediate impact on central bank balance sheets.

Experts have long warned that in a low interest rate environment, savers would have little incentive to keep their cash in commercial banks if they could also hold super-safe digital central bank money. That would squeeze commercial bank funding, limiting banks’ ability to lend and potentially damaging the transmission of monetary policy to the real economy, the online publication added.

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Keywords: Bundesbank, digital money, cryptocurrency, banks, financial crisis, Germany
Countries: World