Burkhard Balz, a German politician and executive member of the country’s central bank, added within an official statement on 20th Oct that it had been crucial to creating tools to limit how the digital euro ‘CBDC’ is employed upon launch.
Balz emphasized that folks should only be able to use the central bank-backed digital euro as a mode of payment and not as a store useful.
If the CBDC has equivalent characteristics as traditional money, depositors could withdraw their funds in times of a crisis by converting it into digital euros, making the funds a liability for the financial institution. “This might cause the structural disintermediation of the banking sector and, as a consequence, could potentially dampen the supply of bank credit to the economy,” Balz warned.
As a measure to stop a digital bank withdrawal, Balz suggested that central banks may limit the number of digital euros users can hold at any given time. Or, he said, banks could control demand for the digital euro by introducing incentives supported tiered remuneration, further adding:
“I am not so sure whether incentives could, actually, prevent a digital bank withdrawal. Therefore, the technical implementation of CBDC would wish to be thoroughly thought over and tested.”
Balz also added that, while the Deutsche Bundesbank was deeply involved in discussions surrounding CBDC, it’s also trying to find alternative digital payment solutions in order that the necessity to introduce a CBDC might be prevented alongside the undesirable implications associated with it. Thereto end, he concluded that the central bank is additionally considering the ways during which it’s going to link blockchain-based solutions and smart contracts with conventional payment systems.
Earlier in the month of July, Balz said during a parliamentary session that cryptocurrencies weren’t present a threat to financial stability. However, he added that they might be dangerous if they “fall outside the scope of regulators’ authority or where there’s an absence of international standards.”