Joachim Nagel, President of the Deutsche Bundesbank and a member of the ECB, emphasized the urgency for central banks to reassess their business models and swiftly adopt central bank digital currencies (CBDCs).
Speaking at a high-level panel during the Bank for International Settlements (BIS) Innovation Summit on May 6, Nagel expressed concern over the uncertain future facing central banks. He noted a significant shift in perspective, saying:
“If you would have asked me 20 years ago if the central bank business model was destroyable or not, I would have said no. Now I am not so sure anymore.”
Nagel stressed the necessity for central banks to adapt to the evolving landscape, identifying distributed ledger technology (DLT) as a crucial tool in this transformation. He added:
“We need to work on our business model. And DLT is just a means, an instrument that could help us here to get to that point.”
Nagel also emphasized the importance of swift action due to the diminishing appeal of physical currency. He said:
“We need to speed up on all this. If part of your core product is losing attractiveness, then you have to think about another new core product.”
Evolving for the 21st century
Bank of France governor Francois Villeroy de Galhau echoed Nagel’s sentiments, advocating for the integration of digital currencies into central bank operations. He, too, emphasized the need for central bank money to evolve in line with 21st-century demands, advocating for CBDCs to maintain stability within the financial system.
The ECB is currently in the process of developing a digital version of the euro, with plans to finalize the project by October 2025. This initiative marks a significant step towards embracing the potential of digital currencies in the modern financial landscape.
In parallel, the Swiss National Bank (SNB) recently revealed its pilot project, Project Helvetia III, which aims to explore the use of wholesale CBDC. Thomas J. Jordan, Chairman of the governing board of the Swiss National Bank, emphasized the importance of central bank money in ensuring financial stability and reinforcing its role as a cornerstone of the monetary system.
However, Jordan cautioned against the issuance of a retail CBDC because it could destabilize the financial system. He added that the potential risks of retail CBDCs outweigh the benefits. Instead, he advocated for the use of wholesale CBDC to facilitate the secure and efficient settlement of tokenized assets.
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