(Bloomberg) —
Central banks planning to issue digital versions of their currencies mustn’t treat commercial financial institutions as “endangered species” that can’t handle competition, according to European Central Bank Governing Council member Jens Weidmann.
“CBDC should be designed in a way that allows its users to reap its potential benefits as fully as possible, while keeping its risks and potential side effects at bay,” the Bundesbank president said at a conference on Tuesday. “This does not call for banks to be protected like an endangered species.”
The ECB is a frontrunner among major central banks exploring the possibility of digital currency. Some global monetary officials studying such plans are concerned that commercial banks’ business models could be undermined if people converted deposits held at those institutions to central bank money on a large scale.
Consumers should face usage limits to prevent doing damage to the financial system, Weidmann said, while also urging central banks not to be too protective.
“On the upside, CBDC could spur on competition among banks and promote new services, he said. “Some banks might also become more cautious and reduce the potential for banking stress.”
Global policy makers are toying with the idea of digital currencies to keep up with technological advances that spurred the rise of Bitcoin and other initiatives. The ECB, where Weidmann sits on the 25-member Governing Council, launched an investigation phase in July that could result in a digital euro being rolled out by the middle of this decade.
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