Central Banks Must Embrace CBDCs: ECB Member

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Joachim Nagel, president of the Bundesbank and member of the European Central Bank (ECB), emphasized the crucial need for central banks to revise their business models and swiftly adopt central bank digital currencies (CBDCs) during a panel session at the Innovation Summit hosted by the Bank for International Settlements on May 6.

Speaking in Basel, Switzerland, Nagel highlighted the uncertainty surrounding central banks, suggesting that their traditional business model might not be as robust as it once seemed.

“If you would have asked me 20 years ago if the central bank business model was destroyable or not, I would have said no,” Nagel remarked. “Now I am not so sure anymore — and that is the reason why we are sitting here. 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.”

Central Banks Need to Integrate DLT

Nagel stressed the importance of integrating distributed ledger technology (DLT) as physical money loses its appeal. 

“We need to speed up on all this,” he added. “If part of your core product is losing attractiveness, then you have to think about another new core product.”

Using Digital Currencies

French ECB member Francois Villeroy de Galhau also addressed central banks and emerging technologies during the BIS conference. Galhau suggested that banks consider using digital currencies for wholesale and retail transactions, stating, 

“The way we make central bank money available has to be geared to the 21st century to ensure that central bank money maintains its fundamental role: this role is not to be the dominant means of payment, but a stability anchor for the financial system. This is why I believe that, sooner or later, we will need a central bank digital currency for wholesale as well as for retail purposes.”

Central Banks and CBDCs

The ECB has been actively developing a digital version of the euro, having completed its investigation phase to determine its design and technical details. The project aims to ensure that central bank money remains relevant in the digital age. 

The ECB expects to finalize the digital euro project by October 2025, aligning with the growing trend towards digitization of the financial sector.

The central banks of Sweden and Israel have shown interest in CBDCs, with the former concluding its digital krona pilot project with the release of its final report. On the other hand, the Bank of Israel is not viewing CBDCs as a threat but as a means of innovation.

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