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The president of the German central bank calls for rapid adoption of CBDCs to remain competitive.
Joachim Nagel, president of the Deutsche Bundesbank and member of the ECB, highlighted the urgency for central banks to reevaluate their business models and quickly adopt central bank digital currencies (CBDCs).
Speaking to the a high-level committee During the Bank for International Settlements (BIS) Innovation Summit on May 6, Nagel expressed concern about the uncertain future central banks face. He noted a significant shift in perspective, saying:
“If you had asked me twenty years ago whether the central bank business model was destructible or not, I would have said no. Now I’m not so sure.”
Nagel highlighted the need for central banks to adapt to the changing 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, a tool that could help us get to that point.”
Nagel also stressed the importance of quick action due to the declining attractiveness of physical currency. He said:
“We need to accelerate all this. If part of your core product is losing appeal, then you need 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 the integration of digital currencies into central bank operations. He too highlighted the need for central bank money to evolve in line with the demands of the 21st century, arguing that CBDCs maintain stability within the financial system.
The ECB is currently developing a digital version of the eurowith the intention of finalizing 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 CBDCs. Thomas J. Jordan, Chairman of the Board of Directors of the Swiss National Bank, underlined the importance of central bank money in ensuring financial stability and strengthening its role as the cornerstone of the monetary system.
However, Jordan warned against issuing a retail CBDC because it could destabilize the financial system. He added that the potential risks of retail CBDCs outweigh the benefits. He instead advocated the use of wholesale CBDCs to facilitate the safe and efficient liquidation of tokenized assets.