German Finance Minister Olaf Scholz said that while the financial system needs innovation, he does not think private digital assets should be a part of it.
According to a Nov. 20 Reuters report, Scholz explained that modernizing the German—and European—banking systems to better fit the current digital era is essential, but pointed out that this need not include privately-issued digital currencies. He explicitly told delegates to the European Banking Congress today:
“I do not support private-sector digital currencies.”
Scholz’s remarks concerning private digital assets—which arguably includes all cryptocurrencies and stablecoins—is just the latest confirmation that the financial system is improving as a way to protect itself from private competition.
As Modern Consensus reported a week ago, the Bank for International Settlements’ head of innovation hub, Benoît Coeuré, recently said that financial innovation by private companies is behind the recent embrace of central bank digital currencies. He specifically mentioned Facebook’s Libra stablecoin project, admitting that it was the real reason why central banks started working on central bank digital currencies (CBDCs).
Scholz is also at odds with European Central Bank President Christine Lagarde, who on Sept. 4 said central bankers must be “open to the opportunities provided by change.” That includes “recognising the wider social benefits from innovation,” including digital currencies, “and allowing them space to develop,” she said.
CBDC development—which seems like mostly a way to protect and even increase the control that central banks hold over the economy from private competition—will also bring major changes to the financial system on their own.
In fact, there is fear that the ability of consumers to hold deposits at the central bank directly would mean that private banks would stop receiving retail deposits. Such deposits are a cheap and stable source of funding for private banks to loan out, so this could have far-reaching consequences for such institutions.
Some financial institutions argue against retail CBDCs for this very reason, but Bank of England Deputy Governor for Financial Stability Sir Jon Cunliffe recently said that it is not the job of the central bank to insulate private banks from this change. His statement was rather blunt:
“Our job is not to protect bank business models.”