Technological innovation in recent years puts a question mark over the future of central banks and officials must ‘accelerate’ adaptation, including digital currencies, according to Bundesbank President Joachim Nagel.
‘If you had asked me 20 years ago whether the business model of central banks’ was ‘destructible or not, I would have said no,’ he said on Monday in Basel. ‘Now I’m not so sure – and that’s why we’re sitting here. We need to work on our business model. And DLT is just one means, one instrument that can help us get there.’
Nagel, who is also a member of the Governing Council of the European Central Bank, was speaking on a panel on central bank digital currencies at a Bank for International Settlements conference. Last year, the ECB moved into the next phase of its digital euro project – preparing the ground to issue the currency in the coming years, although a final decision has not yet been made.
Bundesbank President Joachim Nagel
The head of the Bundesbank said that ‘it’s a necessity to really get there’ on the digital euro. ‘We need to accelerate all of this,’ including distributed ledger technology, he said.
‘If part of your core product is losing attractiveness, then you have to think of another new core product,’ he said, referring to the declining interest in physical cash – even in cash-loving Germany.
Earlier in the day, ECB Governing Council member François Villeroy de Galhau from France said that central banks should consider using digital currencies in both wholesale and retail trade.
‘The way we provide central bank money must be adapted to the 21st century, to ensure that central bank money retains its fundamental role: this role is not to be the dominant means of payment, but rather an anchor of stability for the financial system,’ said the president of the Bank of France. ‘That’s why I believe that sooner or later we will need a central bank digital currency, both for wholesale and retail.’
The public has focused on retail Central Bank Digital Currencies (CBDCs), where consumers would have direct access to the central bank’s digital currency, just as they currently have cash. Monetary authorities around the world have also looked at wholesale CBDCs, where the goal is more efficient technology for payments between banks and the central bank, possibly using blockchain.
The new technology has the potential to impact commercial banking, although Villeroy said at the BIS conference that ‘we are preparing accordingly at the ECB and the Banque de France; and commercial banks need not be afraid.’
Speaking at the same event, his Italian counterpart on the ECB Governing Council, Fabio Panetta, emphasised that wholesale CBDCs are gaining strength, referring to a survey carried out by the BIS Payments and Market Infrastructures Committee.
‘We see a marked increase in the number of wholesale experiments,’ he said. ‘In addition, the likelihood of central banks issuing a CBDC in the next six years is now higher for the wholesale market than for the retail market.’
BIS Research Director Hyun Song Shin agreed.
‘There has been a shift in gravity more towards wholesale CBDCs,’ he said.
O.Económico
