The value of Bitcoin has almost tripled since the beginning of the year. Jens Weidmann, President of the Deutsche Bundesbank and one of the most powerful men in the financial world, sees this as a major threat to global financial stability.
According to Weidmann, bitcoins have the potential to make future financial crises much worse. The Bundesbank boss said this in a lecture in Frankfurt a week ago. Digital currencies such as Bitcoin have seen the risk of a bankruptcy rise rapidly. How does that fit together?
Pressure on the banknotes around the world is growing
The power of cryptos increases and pressure on banknotes is growing all over the world, because: In order to give the average citizen the feeling that such currencies are stable and secure, central banks could (in future) have to provide their own cryptanages. And that’s exactly what Weidmann is concerned about.
If banknotes were to offer their own digital currencies in the near future, it could be obvious for Otto normal consumers to pay for it. This alone is not problematic. However, in times of economic crises this could mean the rapid ruin of banks around the world.
As soon as customers are concerned about the financial stability of their banking institution, they usually only want to save their savings – a so-called bank run, ie a rush to the bank. At the same time, many bank customers try to withdraw their entire money as far as possible in order to protect themselves from expropriation by the bank. In the worst case, this can lead to an insolvency.
According to Weidmann, the risk of bankruptcy is rising with cryptic payments – especially with a ECB issued – as withdrawal of money would be much faster. All that is needed is a digital transaction that is completed within a few minutes. Nobody needs to go to a bank switch or an ATM. And even worse: the bank can hardly protect itself against a deduction of digital money. It does not help to close the bank, as is currently possible at a bank run.
For months, the world’s leading central bankers are actually thinking about their own digital and state-backed currencies.
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