Jens Weidmann, president of Deutsche Bundesbank (Germany’s central bank) and policymaker for the European Central Bank (ECB) says banks in the region need to be wary of Libra and private crypto projects. Weidmann is the latest financial stakeholder in the European Union (EU) to call for banks to take notice of the emerging crypto sector.
Several commentators expect the EU to seriously consider creating a digital currency for the region to tackle Libra as well as stay abreast with China’s fintech expansion. Some central banks have also announced plans to move forward with the creation of a sovereign digital currency.
Banks Should be Worried About Libra and Private Cryptos
According to Bloomberg, Weidmann says European banks should not treat Libra and other private crypto projects lightly. Back in 2019, Libra released its whitepaper for a global payment vehicle via a digital token backed by a basket of fiat currencies.
Several financial regulators and central bank officials across the globe expressed concerns over the project. Stakeholders in Europe, especially Germany and France argued that the project could have negative monetary policy control implications.
While criticizing private crypto projects, Weidmann admitted that it is within the purview of companies to push the boundaries of innovation, stating:
“I’m not in favor of always immediately calling on the state to come up with solutions. In a market economy, it’s up to companies to develop products that meet customer demands.”
European Banks Should Go with the Times
Rather than blocking private crypto projects like Libra, the Bundesbank chief advised European banks to go with the times and create platforms that would facilitate faster and cheaper cross-border remittances. Crypto projects like Ripple and Libra promise transaction times that far outstrip the capabilities of mainstream avenues at a fraction of their cost.
In Asia Pacific, financial institutions are already seeking to drive innovation in the banking and payment arenas with the emergence of virtual banks. Authorities in Hong Kong have begun granting licenses to these virtual banks since 2019. Analysts predict that these establishments will begin to take off fully starting from 2020.
Virtual banking is expected to dovetail with the fully expressed electronic banking scene in countries like China as well as provide robust solutions for customers who fall into the overbanked category by offering significant cost reductions for banking and financial products.
ECB Joining CBDC Wars?
While advocating for banks to embrace the current technological trends, Weidmann argued against the creation of an ECB virtual currency for the region. According to the ECB policymaker, Europe does not need to develop its own sovereign digital currency.
With China moving forward with plans for its digital RMB, some stakeholders within the ECB have argued for the EU creating a digital Euro. Proponents of the proposed plan say such a step would prevent Europe from falling far behind China in the race for global relevance in the emerging digital economy.
Meanwhile, indications already exist that China’s digital currency will aid authorities in Beijing amassing greater state control over money flows in China. The Chinese government could potentially utilize the power of blockchain technology to engineer near-total financial surveillance of the country’s population.
As forecasted by Blockonomi, 2020 could be the year of the central bank digital currency (CBDC) wars as several nations vie for control of the state-issued virtual currency market. As previously reported by Blockonomi, the ECB is reportedly keen on coming out tops in the competition with other central banks.