In a speech today, Dr. Jens Weidmann President of the Deutsche Bundesbank, spoke about the potential of a digital euro. He highlighted both the opportunities and threats that central banks need to consider when designing a central bank digital currency (CBDC). The European Central Bank announced a two-year CBDC exploration project in July this year.
One of the biggest risks is the impact on commercial banks if consumers switch bank deposits to a CBDC. That’s particularly a concern in times of crisis. Hence there’s a good chance that there will be digital euro balance limits. Dr. Weidemann encouraged a gradual switch to a CBDC.
At the same time he said that this “does not call for banks to be protected like an endangered species, either.” This echoes similar comments made by former Bank of England Governor Mark Carney, who said this June, “Banks are a means to an end, not ends in themselves. And will have to adapt to a much more competitive environment.”
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