State-Issued Digital Currency Has ‘Not Well Understood’ Risks

The German Federal Ministry of Finance considers the concept of a central bank-issued digital currency (CBDC) to be too risky to implement, Cointelegraph auf Deutsch reported July 5.

The finance ministry expressed its position in response to an inquiry by Green Party MP Gerhard Schick published business newspaper Handelsblatt Wednesday, July 4.

“So far there are no convincing reasons for issuing digital central bank money for a wide range of users in Germany and the Eurozone,” Handelsblatt quoted the Ministry as saying.

The potential benefits of a central bank-issued digital currency –– including high-speed bank transfers –– could also be realized in other ways, the Ministry argues, saying that a CBDC contains “a number of risks that are not well understood.”

The Ministry wrote that a central bank would also obtain a stronger position in the financial system if it were to issue a cryptocurrency, which could jeopardize its independence. According to the Handelsblatt, the Finance Ministry also feared that in a crisis, bankruptcy with digital central bank money could happen faster and on a larger scale due to lower transaction costs. The officials also argued a digital currency would make it more difficult to combat money laundering and terrorist financing.

Globally, governments have expressed varied sentiments towards state-issued digital currency.  In May, the Bank of England concluded in a working paper that the introduction of a CBDC would not have a negative impact on private lending or on providing liquidity to the economy as a whole. The same month, the Norwegian central bank, Norges Bank, went so far as to recommend the idea of ​​a CBDC as a supplement to cash in a study.

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