Weidmann says banks shouldn’t be pampered in digital currency plans

(Bloomberg) – Central banks planning to issue digital versions of their currencies should not treat commercial financial institutions as “endangered species” that cannot handle competition, says Board member Jens Weidmann of the European Central Bank.

“The CBDC must be designed in such a way as to allow its users to make the most of its potential benefits, while controlling its risks and potential side effects,” the Bundesbank President said at a conference on Tuesday. “This does not call for protecting banks as an endangered species.”

The ECB is a forerunner among major central banks exploring the possibility of a digital currency. Some global monetary officials studying such plans fear that the business models of commercial banks could be compromised if people on a large scale convert deposits held in these institutions into central bank money.

Consumers would have to face usage limits to avoid harming the financial system, Weidmann said, while urging central banks not to be overly protective.

“On the positive side, the CBDC could stimulate competition among banks and promote new services,” he said. “Some banks could also become more cautious and reduce the potential for banking stress.”

Global policymakers are playing with the idea of ​​digital currencies to keep up with technological advancements that have 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 lead to the deployment of a digital euro by the middle of this decade.

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