Key Takeaways:
- Joachim Nagel, president of the Bundesbank, emphasized the urgent need for central banks to adapt their business models by incorporating central bank digital currencies (CBDCs) to maintain future stability and relevance.
- Nagel highlighted the diminishing appeal of physical currency and advocated for the rapid adoption of technologies like distributed ledger technology (DLT) to innovate central banking processes.
- The European Central Bank (ECB) is progressing with its digital euro project, aiming to complete the design and technical specifications by October 2025, signifying a major shift towards central banking in the digital era.
In a decisive call to action at the BIS Innovation Summit, Joachim Nagel, president of the Bundesbank and a key member of the European Central Bank (ECB), emphasized the critical need for central banks to overhaul their existing business models and rapidly incorporate central bank digital currencies (CBDCs).
This shift, he argued, is crucial for the future stability and relevance of central banks.
The technological innovation of the past years puts a question mark over central banks’ future and officials must “speed up” adaptation including digital currencies, Bundesbank President Joachim Nagel says https://t.co/EI7fBligFb
— Bloomberg Crypto (@crypto) May 6, 2024
During a panel at the summit, which took place on May 6, Nagel reflected on the evolving landscape of banking and the increasing uncertainty surrounding traditional central bank functions.
He remarked, “If you would have asked me 20 years ago if the central bank business model” was “destroyable or not, I would have said no,”
“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.” he added.
Nagel highlighted the declining allure of physical money and the urgent need to adopt innovative technologies like distributed ledger technology (DLT).
He stressed, “We need to speed up on all this […]. If part of your core product is losing attractiveness, then you have to think about another new core product.”
Further insights were shared by Francois Villeroy de Galhau, another ECB representative, who spoke about the potential applications of digital currencies in both wholesale and retail transactions earlier in the summit.
ICYMI – At the #BISInnovationSummit, Fabio Panetta, CPMI Chair and @bancaditalia Governor, previewed this year’s BIS #CBDC survey; stay tuned! pic.twitter.com/Ojvxur0RSF
— Bank for International Settlements (@BIS_org) May 6, 2024
He stated, “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.”
The ECB is on track with its digital euro project, having recently completed the investigation phase to finalize its design and technical specifications.
The project’s completion is anticipated by October 2025, marking a significant milestone in adapting central banking to the digital age.
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