Home Crypto Libra The Digital Currencies Perspective by the Bundesbank: Adaptation or Death

The Digital Currencies Perspective by the Bundesbank: Adaptation or Death


End of May, the president of Bundesbank, Germany’s Central Bank, Jens Weidmann said he’s “not impressed” by the blockchain technology, as a trial project to employ blockchain settlements “proved to be more costly and less speedy than the traditional way”.

Jens Weidmann stated that digital currencies would de-stabilise the financial system in a speech at a symposium in Frankfurt on Bundesbank’s Payments, titled Prometheus and Epimetheus in the Digital Age, and he attacked the Bitcoin for its volatility saying that it was not suitable as value storage nor as performing the functions of money in the economy.

At all events, they do not perform the central functions of money in an economy. Their volatility means that crypto-tokens are probably suitable neither as a reliable store of value nor as a unit of account. And they are also rarely used as a medium of exchange because the transaction costs are often high and transactions take a relatively long time to be settled.

Also, speaking about the blockchain test, he said:

The tested variants, on the whole, proved fundamentally suited to high-volume use. Compared with systems in use now, however, the blockchain solutions did not perform better across the board: settlement sometimes took longer and generated relatively high computational costs.

And concluding that “Although the new technology has a promising future, more developmental work will be necessary for it to be able to be used in practice.”

Central Bank Digital Currencies

During his speech, Weidmann stated that although the digital central bank currency is an issue that must be addressed, “central bank digital currencies should be carefully considered”.

Depending on its specific shape, central bank digital currencies available to the general public could have severe impacts. They could affect the banking system, for one thing, as widely accessible central bank digital currencies could fundamentally alter banks’ business models and financial market intermediation. For another, the demand for central bank digital money could be greater, or more volatile, than that for cash, with effects on the central bank’s balance sheet to match. Third and last, in a crisis, the threat to financial stability could possibly be even more severe than today, as central bank digital currency would represent an additional, highly liquid and safe alternative for investors. Therefore, a “flight to safety” in general, or a digital bank run in particular, could occur faster and more extensively than in the past.

TARGET Instant Payment Settlements

He mentioned the need to adapt to the increasing state of the digitalisation society is experiencing and make real-time payments a reality.

To process these transactions, the Eurosystem set up TARGET instant payments settlement – or TIPS, for short – last November. TIPS is a service that makes pan-European real-time payments settled directly in central bank money a reality.

Although he also commented on the reluctance by banks to embrace it:

Banks have been pretty reluctant to embrace instant payments so far. And while that fits in with past experience that systems like these need time to find their feet, it would be good to see instant payments reach critical mass more quickly.


Maybe the crypto world is too open or still too naive. The fact that traditional banking does not publish their hackings and the money that was stolen, doesn’t mean they are safe from hackers.  The Bundesbank alone had more than 3 million unauthorised attempts and nearly “successful” 6,000 events.

In 2018 we registered 7.3 million internet visits and emails compromised by malware which we had to block internally, and 3.1 million unauthorised attempts to access our applications that we had to fend off. Our in-house team of experts – the Computer Emergency Response Team (CERT) – analysed nearly 6,600 events last year.

Proactive measures include a team of ethical hackers with the purpose of finding system vulnerabilities. The European Framework for Threat Intelligence-Based Red teaming- TIBER-EU. A uniform framework by Central Banks to help entities from the financial sector test their level of resilience to hacker attacks.

This week, Burkhard Balz, Bundesbank’s member of the Executive Board gave a speech at the 2nd Cloud Banking Conference in Brussels titled Digital Transformation – A Central Bank Perspective, in which, with the perspective of the Libra project announcement, he has shifted Bundesbank’s perspective regarding digital money and the current world digitalisation:

While no one can predict the future with certainty, we know one thing for sure – digital transformation is here, it’s now and it’s big. It changes the way we live and work.

Then he stated:

I have already mentioned that digital transformation is fundamentally changing the financial sector.
Don’t get me wrong here. We are not talking about “evolution”, about banking adapting to the wants and needs of a digital generation – we are talking about a true “disruption” that may change the financial sector for good.

Digital transformation is shifting basic economic forces that shape the sector in all respects.

to conclude he said

While harbouring enormous possibilities, digital transformation also poses quite substantial challenges. In particular, it reshapes the financial system in a way we still do not fully comprehend. This throws up new kinds of questions that require new answers.









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