Watch the video of the Lecture by Dr. Joachim Nagel, President, Deutsche Bundesbank
In an increasingly digitalized world, Bundesbank President Dr. Joachim Nagel explained how a digital euro can safeguard the anchor function of central bank money and what the opportunities and risks are in this context in a Special Lecture organized by the Center for Financial Studies (CFS) and the Institute for Monetary and Financial Stability (IMFS). In his lecture on July 11 at the Westend Campus, Nagel particularly emphasized the opportunities that a digital euro could open up for both private individuals and companies. In everyday life, the digital euro could enable simple payment - "just as we know it from cash, but digitally" and be usable in stationary retail as well as online. But cashless payments between private individuals or with public authorities would also be possible.
According to Nagel, a digital euro could "support progress and increase Europe's sovereignty" in payment transactions within Europe. Until now, there has been no single, cross-border solution for e-commerce or card payments for the euro area that is based on European infrastructure. With a digital euro, digital payments could be executed independently of non-European payment infrastructures, Nagel added. "This would reduce risks and dependencies in payment transactions, which would also beneficial to financial stability."
In light of frequently cited disadvantages such as the risk of a bank run or structural disintermediation - when bank customers shift a significant portion of their bank deposits from their checking account to digital central bank money - Nagel urged prudence. "In the event of an introduction, it will initially be necessary to design the digital euro with an eye to keeping the potential risks manageable." From Nagel's perspective, however, the positives outweigh the negatives: "In my view, we should take advantage of the opportunities that digital central bank money offers. It has great potential."
In the ongoing digitalization, the introduction of a digital euro is also an important measure from a monetary and currency policy perspective, according to Nagel. "Central bank digital currency could be an important building block for public money to continue to act as an anchor for all forms of money denominated in euro, even in an increasingly digitalised economy."
The discussion about a digital euro should also be understood as the monetary guardians' response to the development of so-called cryptocurrencies such as Bitcoin and Ether. That's because, unlike cryptocurrencies, a digital euro would also allow private commercial bank money to be exchanged for central bank money in the digital world.
The central banks of the Eurosystem have been examining the possible introduction of a digital variant of the common currency for some time. In July 2021, the European Central Bank (ECB) gave the go-ahead for a two-year investigation phase in which questions about technology and data protection will be clarified. According to Nagel, the Eurosystem has currently identified two different design options: an online option, through which payments are processed by a third party, and an offline option, in which payments are made directly from person to person. A decision on the general introduction is to be made in the fall of 2032.
In this context, Nagel also highlighted CFS and IMFS research on current developments in the financial system. "Cooperation between central banks and state-of-the-art research institutions is of great importance if the stability of the financial system is to be ensured as best as possible going forward." He added that the Bundesbank is fortunate to have several of these in close proximity.
Read the full speech by Dr. Joachim Nagel, Deutsche Bundesbank
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