Deutsche Bundesbank: CBDC should not serve as a store of values

The German central bank is looking for alternatives to CBDCs as a digital payment solution.

In a speech on 20 October, Burkhard Balz, a German politician and member of the board of the German central bank, said it was crucial to develop tools to limit the use of the digital euro when it was introduced.

Balz stressed that people should use the digital euro issued by the central bank only as a means of payment and not as a store of value.

If the digital central bank currency has the same characteristics Crypto Code as traditional money, depositors could withdraw their money in times of crisis by exchanging it for digital euros. This would make the money a liability for the central bank. „This could lead to a structural disintermediation of the banking sector and, as a result, possibly slow down the provision of bank loans to the economy,“ Balz warned.

As a measure to prevent a digital bank run, Balz suggested that central banks could restrict how many digital euro users receive at any given time. Or the banks could control the demand for the digital euro by offering incentives, such as graduated remuneration:

„I am not so sure that incentives could really prevent a digital bank run. Therefore, the technical implementation of a CBDC would have to be thoroughly considered and tested“.

Mr Balz also explained that although the Deutsche Bundesbank was heavily involved in the discussions on a CBDC, it was also looking for alternative solutions for digital payments. In this way, it wants to prevent the introduction of a CBDC and the undesired effects that would result from it. He went on to say that the central bank was also considering how it could link block-chain-based solutions and smart contracts with conventional payment systems.

At a parliamentary session in July, Balz said that crypto-currencies would not currently pose a threat to financial stability. However, he added that they could be dangerous if they „do not fall within the remit of regulators or if there are no international standards“.

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