German Bundesbank President Jens Weidmann highlighted the risks of introducing the Central Bank Digital Currency (CBDC), focussing on the “disintermediation“ issue, i.e., the elimination of commercial banks. Speaking at the virtual conference “Future of Payments in Europe” on Nov. 27, Weidmann said that “while some hail such a CBDC as the next logical step, it is not an end in itself, and others point to a ‘lack of a concrete business case’ at present.“ In particular, Weidmann said that “there are serious concerns about the potential ramifications of CBDC on the financial system. If it were more attractive to hold the digital euro than bank deposits, consumers would at least gradually shift their funds to the central bank. Economists call this ‘structural bank disintermediation.’ Along with deposits, banks would lose a convenient source of funding and would have to rely increasingly on bonds or central bank credit for funding. What this means for the commercial banks’ supply of credit to the economy is not clear a priori and depends on a number of factors. Nevertheless, banks’ traditional role in the financial system could be transformed.“
It looks like Weidmann and others in the German banking community fear what the City of London’s The Economist advocates (see accompanying slug).
“Even if deposits at banks were more attractive for consumers than the digital euro in normal times, for example due to the interest they bear, what would happen in times of systemic crisis? CBDC would be a safe haven for consumers. If their preference for security trumped all other incentives, consumers could shift their funds instantaneously, which might facilitate a bank run.“
Weidmann concluded saying that CBDC should not replace money altogether but should be an option among several methods of payment: “In my view, consumers should be able to choose from a broad spectrum of payment methods that fit their preferences for safety, convenience, speed, cost efficiency and privacy. To this end, it is first and foremost up to the private sector to develop and provide innovative payment solutions. We central banks need to be at the cutting edge of technology as the payment systems rely on our infrastructure. This includes working on CBDC.“ Weidmann quoted ECB President Christine Lagarde to show that this is the ECB position ("Christine Lagarde has made it very clear: ‘The Eurosystem will continue to ensure that all citizens have access to banknotes at all times.'”). He did not say whether Lady Gagarde’s nose was growing, while she was saying that…. https://www.bundesbank.de/en/press/speeches/shaping-the-future-challenges-in-the-european-payments-market-851850
