President of Germany’s Central Bank Warns of Serious Outcomes of Digital Currencies

The president of Germany’s central bank, the Deutsche Bundesbank (BBk), has warned central banks about the potential risks of introducing digital currencies, Reuters reports on May 29.

Jens Weidmann, BBk president and chairman of the board of the Bank for International Settlements (BIS), reportedly claimed that the adoption of digital money could potentially destabilize the financial system during periods of crisis.

The German economist explained that easy access to digital currencies could accelerate a collapse of lenders, while it would “fundamentally change the business model of banks” even in a good economic environment .

Weidmann also argued that easy access to digital money can potentially lead to increased volatility, which would negatively affect central banks in terms of balance sheets.

The Deutsche Bundesbank is a part of the European System of Central Banks, and is reportedly the most influential entrant of the organization due to its former size. The bank is purportedly the first central bank to acquire full independence, resulting in the name Bundesbank model for its form of a central bank.

The Bundesbank model is reportedly used by the European Central Bank (ECB) as a basis for the entire euro system.

Yesterday, the German government claimed that the authority has not seen any “cyber incidents” or market manipulation occurring on crypto trading platforms in the country.

Earlier this week, an official at the ECB outlined major benefits of central bank digital currencies (CBDCs), while also stressing caution. According to the official, CBDCs can play the role of a medium of exchange, a means of payment and a store of value. However, the adoption of such currencies could also potentially increase levels of financial exclusion, the ECB official added.