on the crypto
The use of virtual currencies by central banks (CBDC) seems destined to stir the waters within the European Union. After the words of Vitas Vasiliauskas, President of the Board of Directors of the Bank of Lithuania and member of the Governing Council of the ECB in their support, it is now the turn to Jens Weidmann, number one of the Deutsche Bundesbank, which has decided to enter the discussion with all the strength deriving from the leadership of the Teutonic central bank.
Weidmann's opposition
Weidmann, who is also a member of the board of directors of Bank for International Settlements (BRI), in fact wanted to make its strong opposition to the hypothesis of the adoption of digital coins by central banks completely known, stating that a move of this kind could lead to serious repercussions on the entire financial system.
According to the president of Deutsche Bundesbank, the possibility of access to digital by the population could prove to be one a real flaw in the system in the event of monetary crises that push savers to a bank run. The ease with which it is possible to create transactions and collection operations that is typical of virtual currencies, in fact, would be able to accelerate the collapse of money lenders in the event of this kind. A nightmare scenario that could force banks from all over the globe to change their business models to avoid it, even if the conditions of the economic situation are favorable.
Another defect hypothesized by Weidmann is then that referred to volatility of cryptocurrency, which could reflect on the whole economy, generating potentially disastrous effects on central bank balance sheets.
Not a new position
However, Weidmann's statements in this sense are not new. The German economist, who is the main candidate for the succession of Mario Draghi at the head of the European Central Bank, he had already spoken out against the CBDC in February 2018. At the time, to reinforce his concept, he recalled the bank run seen in the 2007 at the branches of Northern Rock, stating that a similar scenario could have had an even greater negative impact on the financial system if virtual currencies were also involved. In the event of a crisis limited to analog assets, in fact, customers can withdraw their money, but they can also be held back by the consideration that in such a case they should have alternative tools to secure their savings, such an eventuality to involve risks and costs, which instead they would not exist as they could have digital counters available.
The same Weidmann, however, had already activated against Bitcoin and Altcoin from within the BRI, the oldest international financial institution, participating in the drafting of a cdumb 24-page document in which users had been alerted by the instability of virtual currencies, defined in no uncertain terms with respect to traditional currencies as well as dangerous for the web and the environment. The report prepared in 2018 he then claimed how digital assets would risk tilting the entire system in case of simultaneous use by all people who own a digital currency. An eventuality that would involve a enormous increase in the size of the blockchain, or the electronic ledger in which all the transactions that take place on the digital infrastructure are recorded. A hypothesis such as to prefigure a block of the web, as it would tilt the typical memory capacity of devices such as personal computers or smartphones, a problem that could be circumvented only by using supercomputers.
Tony Anderson's criticism
Weidmann's opinion he had been criticized at the time by Tony Anderson, analyst at the law firm Pinsent Masons, according to which the possibility of having a cryptocurrency issued by central banks as an alternative to cash would not automatically reflect on a bank run at traditional commercial banks, as it would be equivalent to extracting cash funds from the bank in question . Anderson himself had said that the volatility levels of Bitcoin and other digital assets could never be reached by a CBDC by definition linked to the intrinsic value of the country's currency and consequently subject to the low volatility of the reference national currency.
Moreover, even from a logistical point of view, according to Anderson, account holders would have no particular incentive to transfer their funds to central banks in the form of cryptocurrencies, preferring them to commercial banks.
