Bundesbank President Favors Limited Initial Role for Digital Euro

Jens Weidmann, the head of Germany’s central bank, said a digital euro should be introduced with only a limited role to mitigate the potential risk of disruption to the banking sector.

• The Bundesbank president said that a digital euro risks overly extending the role of central banking, Reuters reported Tuesday.
• “A gradual approach might make sense given the risks involved – that means a digital euro with a specific set of features and the option to add further functionalities later,” Weidmann said at a conference.
• He highlighted the risk that in times of crisis consumers would hold all their money with the central bank. That could cut off funding for commercial banks and inhibit their ability to lend.
• A European central bank digital currency (CBDC) is in the early stages of development. The European Central Bank approved 24-month investigation phase in July.
• Weidmann was restating warnings he has made previously around the implications of a CBDC on the eurozone’s banking system. Germany’s central bank has generally been less enthusiastic regarding development of a digital euro than its counterparts in France and the Netherlands.

Read more: Ireland’s Central Bank Governor Says Digital Euro Is ‘Very Likely’