Member of the Executive Board of the German Bundesbank Burkhard Balz believes that the introduction of the digital euro could have sweeping consequences for the entire financial system.
If a central bank digital currency (CBDC) were to acquire characteristics similar to traditional money, in a crisis depositors would mass-convert their funds into it.
“This could lead to destabilisation of the banking sector and, as a consequence, potentially weaken lending to the economy,” Balz said.
In his view, the solution would be to limit the amount of digital euros a single user could hold. This would allow regulators to control demand for the asset and use it solely as a means of payment.
“A comprehensive analysis and evaluation of state cryptocurrencies, comparison with alternative options. The impact of the digital currency on society at large needs to be assessed,” Balz emphasised.
He added that the Bundesbank is involved in discussions around CBDC, but seeks solutions that would prevent this step.
In 2019, Jens Weidmann, president of the Bundesbank, warned with similar cautions. In his view, high demand for cryptocurrencies could negatively affect the regulator’s balance sheet.
As reported, on 12 October the European Central Bank (ECB) opened public discussion of the advantages and problems associated with issuing a digital currency.
Earlier, ECB President Christine Lagarde stated that CBDC will be a complement to cash.
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