Bundesbank's Weidmann: Digital Currencies Will Make The Next Crisis Worse

Tyler Durden's picture

When global financial markets crash, it won't be just "Trump's fault" (and perhaps the quants and HFTs who switch from BTFD to STFR ) to keep the heat away from the Fed and central banks for blowing the biggest asset bubble in history: according to the head of the German central bank, Jens Weidmann, another "pre-crash" culprit emerged after he warned that digital currencies such as bitcoin would worsen the next financial crisis.

As the FT reports, speaking in Frankfurt on Wednesday the Bundesbank’s president acknowledged the creation of an official digital currency by a central bank would assure the public that their money was safe. However, he warned that this could come at the expense of private banks’ ability to survive bank runs and financial panics.

As Citigroup's Hans Lorenzen showed yesterday, as a result of the global liquidity glut, which has pushed conventional assets to all time highs, a tangent has been a scramble for "alternatives" and resulted in the creation and dramatic rise of countless digital currencies such as Bitcoin and Ethereum. Citi effectively blamed the central banks for the cryptocoin phenomenon.

Weidmann had a different take, and instead he focused on the consequences of this shift towards digitalisation which the Bundesbank president predicted, would be the main challenge faced by central banks. In an ironic twist, in order to challenge the "unofficial" digital currencies that have propagated in recent years, central banks have also been called on to create distinct official digital currencies, and allow citizens to bypass private sector lenders. As Weidmann explained, this will only make the next crisis worse:

Allowing the public to hold claims on the central bank might make their liquid assets safer, because a central bank cannot become insolvent. This is an feature which will become relevant especially in times of crisis when there will be a strong incentive for money holders to switch bank deposits into the official digital currency simply at the push of a button. But what might be a boon for savers in search of safety might be a bane for banks, as this makes a bank run potentially even easier.

Essentially, Weidmann warned that digital currencies - whose flow can not be blocked by conventional means - make an instant bank run far more likely, and in creating the conditions for a run on bank deposits lenders would be short of liquidity and struggle to make loans.

“My personal take on this is that central banks should strive to make existing payment systems more efficient and still faster than they already are – instant payment is the buzzword here,” the Bundesbank president said. “I am pretty confident that this will reduce most citizens’ interest in digital currencies.”

Which, considering the all time highs in both bitcoin and ethereum, would suggest that citizens faith and confidence in the existing "payment systems", and thus central banks, is at all time lows.

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BaBaBouy's picture

Interesting, No Mention Of GOLD ???

Killtruck's picture

Seems like if anything is bad for banks, it's good for people. 

But maybe that's crazy.  

tmosley's picture

>Digital currencies will make the next crisis worse

FOR YOU.

Creepy_Azz_Crackaah's picture

That's why EVERYONE needs to buy my SuperMegaBlasterCoin digital currency. My SuperMegaBlasterCoin is backed by the same valuable 1s and 0s that all other digital "currencies" are backed by so purchase yours NOW...

Hurry...

Limited time offer...

Valuable information...

Not speculation, REAL money...

Investment.

YUUUUUGE profits...

Just send me $100/coin and I'll email them to you. Limited time offer. YUUUUGE gains in the near future.

Pandelis's picture

power to the lumpen proletars - Go Bitcoin

stitch-rock's picture

Keep posting this same bullshit over and over and it still
is a weak metaphor (aka logical fallacy).
Its obvious you feel all smart referencing historical slags,
but miscontextualizing it is intellectually bereft.

Life of Illusion's picture

CB will use all reasons to issue their own DC not BitCoin.....

they cant have the puplic in danger...

THE DIGITAL CURRENCY RUSH IS ON...

http://www.nationalbank.kz/cont/%D0%98%D0%BD%D1%84%D0%BE%D1%80%D0%BC%D0%...
Txpl9421's picture

By that time the cat will be out of the bag.  Why in the hell would someone want to use FedCoin when the reason they are looking for a Digital Currency is because the Fed has been horrible at managing the dollar?

 

 

mtl4's picture

No capital controls have been the cause for the rise of cryptocurrencies, a lack of government confidence will raise all assets (Gold, Crypto, Real estate, etc).

Erek's picture

What are we waiting for? Let the run begin.

HenryKissingerBilderberg's picture

CENTRAL BANK emited digital currencies....

AAAAAAAAAAAAAAAAJHAJAJAJAJAJAJAHAHAHAHAHAHa

what a stupid idea!

As the FT reports, speaking in Frankfurt on Wednesday the Bundesbank’s president acknowledged the creation of an official digital currency by a central bank would assure the public that their money was safe. However, he warned that this could come at the expense of private banks’ ability to survive bank runs and financial panics.

Essentially, Weidmann warned that digital currencies - whose flow can not be blocked by conventional means - make an instant bank run far more likely, and in creating the conditions for a run on bank deposits lenders would be short of liquidity and struggle to make loans.

“My personal take on this is that central banks should strive to make existing payment systems more efficient and still faster than they already are – instant payment is the buzzword here,” the Bundesbank president said. “I am pretty confident that this will reduce most citizens’ interest in digital currencies.”

fx's picture

Only that you cannot convert a lot of money instantly into cryptos (which I am a fan of, btw). Why? well, before buying BTC or ETH with $ or Euros, you first have to transfer those to a cryptocurrency exchange via, you guessed it, the banking system. In times of crisis that transfer may be blocked or delayed. But if you deposit those $ or € in advance, you run the risk that the crypto-exchange may get hacked, be a fraud or otherwise vulnerable to losing your non-digital currency there. And converting them in advance in sizeable amounts? Uhm, I'm not prepared to do that, yet.

And please, spare me the drivel of claiming that BTC, ETC are stores of value. I own them both, but a store of value cannot be something that fluctuates by 20%+ within 24 hours.

Teja's picture

Well, Weidmann seems to envision a world where it would be possible to do the conversion from any bank account with a simple mouseclick. Actually, in Germany, the exchange bitcoin.de is linked directly to a real bank, Fidor, which means you can do that there today. Euros at Fidor are secured the same way as at, say, Deutsche Bank, while they can be used for purchase of bitcoins instantaneously. And for sales of bitcoin, the other way round of course.

If he is right, and if such links become more common, a bank run would have interesting consequences for bitcoin or any other cryptocurrency involved. Even if the conversion were only from Euro to ecbcoin (bound 1:1 to Euro) (the term eurocoin is taken already... with a market cap of about 10 BTC), it would be easy later on to move that into other cryptocoins. So, it would enable bank runs as he says, but also push the whole cryptocoin sector to the sky.

ATM's picture

It's not the rise of assets but the fall of currency.

BlindMonkey's picture

I expect this to be true but this should make CB more accountable for fiat emission and, hopefully, keep the banks from counterfeiting.  Both would be positive to humanity (at the expense of banksters).

stitch-rock's picture

No, more likely it will be -alt-P then purchase of cryptos that actually have legitimate economic traction and robust systems in place. NO system succeeds unless there are enough willing participants. Kazakhstan is the example for global trending? lol

Life of Illusion's picture

Kazakhstan is the example for global trending? 

 

NO , JUST ONE IN THE LAST 24HRS...

 

BUT KEEP AN EYE ON THIS GIRL...

 

https://cointelegraph.com/news/kazakhstan-central-bank-to-sell-blockchai...

Blockchain assets recording

Storing digital assets on the Blockchain is not a new idea. Digital Asset Holdings, led by ex-J.P. Morgan banker Blythe Masters, is one of the well-known companies in this field. As early as 2015, issuers were able to use the Nasdaq Linq Blockchain technology to record private securities transactions. Banks across the world are engaged in pilot studies to see how their existing legacy databases, especially in the securities segment, can be replaced by Blockchain technology.

Attitude U-turn

The primary reason why government authorities refuse to outrightly back Bitcoin or other cryptocurrencies is the pseudonymity and other privacy features associated with them.

They also fear the loss of control over the monetary system. In 2013, the Kazakhstan vice minister of finance stated that his country’s position in the global financial system could be undermined by Bitcoin.

Governments are more supportive of Blockchain technology, given its potential to reduce costs. By storing the bonds on a Blockchain, the central bank aims to capitalize on the advantages of the Blockchain, without diluting the strict identification norms required for users.

This system could be used to market other securities as well, including stocks targeted for sale to retail investors during IPOs.

stitch-rock's picture

Think you missed the point:
NO system succeeds unless there are enough willing participants. Who the fuck will trust JPMs take onthe blockchain if that product is competing in the open market of Cryptos?
This post is just a rehash opinion with no theory.

Lets clarify using Gresham's Law:
Bad Money (aka a forced upon system of accounting) chases out good money (PMs and cryptos)

ALL the bad money (aka fiat currencies) have been forced into a closed system with no outwardly
moving vectors. BTC has become the release valve where PMs have been 'captured' inside the 'pricing' regime.
Considering how small the economy of Kazakhstan, looking at Montana is probably more telling of financial sentiments...
http://www.trustnodes.com/2017/06/13/us-state-montana-invests-directly-b...

silverer's picture

Oh crap! You'd better HURRY UP before there's no zeroes and ones left!

https://en.wikipedia.org/wiki/List_of_cryptocurrencies

.

Cognitive Dissonance's picture

I hear they make them out of thin air like the Fed's fiat.

But what do I know?

cryptoe's picture

google digix global and tenx. you'll be able to buy your groceries with gold within 3 months.

webmatex's picture

Me want  SuperMegaBlasterCoin digital currency cause it sownds cooool!

Me not have funny $100/coin?

Where me get?

WhosJohnGalt's picture

ETH & BTC on sale at this very moment.

If you've been holding out for the next "dip", here's your chance.

Silver Savior's picture

It would help if coinbase would actually allow me to spend the kind of money I want to. I could never figure out why they restrict the amount you buy. Seems counter productive. I can't ever raise my limits it never works. All the exchanges seem to be like this. 

Cognitive Dissonance's picture

Because only special people are allowed to move markets with big money or large leverage.

WhosJohnGalt's picture

Yep Coinbase/GDAX (along with Poloniex and Kraken) conviently, almost always seem to lag / go offline (likely due to coordinated DDoS attacks) during these big drops.

It's whales stop-loss hunting.  They are forcing margin calls / liquidations so they can pick up ETH & BTC for cheaper.

Usually within 24-48 hours post-bear run, things are trading higher.  Wash, rinse, repeat every couple of days/weeks.

That's why it's best to just average in (if you can -- i.e. Coinbase isn't down) and hodl long term.

Oliver Jones's picture

The central bankers are starting to worry that if people figure out that a blockchain-based currency (with a public, auditable and impossible-to-fiddle distributed ledger) doesn't allow them to print money at will, their little game will unravel in hours, possibly even minutes.

The best part? Crypto is neither debt-based nor fractional reserve. The old games that bankers could play don't work on the new platform; their cheat mode is non-functional. Yes, it's based on nothing more than bits in a computer, that part is true. But global consensus is required to change those bits! Bank-based electronic cash carries none of the checks and balances, and simply allows us all to be fleeced via inflation.

Does that mean gold is obsolete? Of course not; once the central bankers figure out that their only remaining course of action is massive EMP attacks, world-wide, that is of course what will happen. Those who have a stack will be wealthy; those who have a stack, working computer equipment *and* necessary resources cached offline will be extremely wealthy.

Plan accordingly.

Cognitive Dissonance's picture

A better 'full faith and belief" you can believe in.

Teja's picture

After a massive WW EMP attack, you would probably not need gold, or be able to exchange it. Canned and dry food, toilet paper, fuel. And lead of course. Our whole infrastructure would break down. No car would run. A horse and a cart would be worth more than gold. Have some Amish friends?

stitch-rock's picture

"Digital Currencies Will Make The Next Crisis Worse for banks"

fixed it

101 years and counting's picture

"Digital Currencies Will Make The Next Crisis Worse for banks, resulting in much bigger taxpayer and CB handouts to bankers"

now it's correct.

stitch-rock's picture

possibly...but the math states we've reached the Rubicon:
it is mathematically impossible to pay back all created debt.

The only thing left to give over are the debt instruments that built the Corporation of the United States. I would hope you know what that means...

Pandelis's picture

Bitcoin?

or another of the up and coming 700 digital dragons

webmatex's picture

Note he knows about The Next Crisis!!!!!

Yog Soggoth's picture

Gold's even worse for banks because it is actually worth something in every part of the world. If everyone put their savings into these products the banks would be left holding an empty bag with a load of debt, and completely powerless to boot.

stitch-rock's picture

"If everyone put their savings into these products the banks would be left holding an empty bag with a load of debt"

No, this is not an accurate outcome.
The futures market, gold fix and options pricing structure will take those savings and leave you holding the empty bag.
VIX and Gold must NEVER find true price discovery or the normalcy bias of the entire system implodes.

silverer's picture

Precious metals are the absolute arch enemy of banks. They fear them far more than cryptocurrencies.

webmatex's picture

The absolute arch enemy of banks is also a legal audit.

nachtliche's picture

Banks love gold/silver because they control the price, pretty obvious with the price suppression for almost a decade now.

Iconoclast421's picture

STFR is not a thing. Does not exist.

QQQBall's picture

Digital currencies a boon for savers... Nice try Heinz...

Prisoners_dilemna's picture

Print more fiat so my transactions become instant. Yeah, the turtle speed of fiat is the problem I have with inked toilet paper currency, and more of it is exactly what we need. /s

/facepalm

WillyGroper's picture

boon for savers?

i guess a virtual print of 1's n 0's wouldn't work.

 

Making Merica Great Again's picture

Cry moaar!

 

I am not selling my bitcoins.

unplugged's picture

yeah, for the banks - which will no longer be needed

banks are so 1900's

zipit's picture

If by "make worse" he means "protect people from," then he's absolutely right.

HominyTwin's picture

Maybe get their boot off of the PMs would also help.

Crypto-World-Order's picture

Fuck the bankers and buy cryptos. Cryptos will end centralization

TheVillageIdiot's picture

Who are these citizens that demand these ridiculous services from their central banks, and why do they keep bothering them for it...

Lost in translation's picture

Keep the Earth clean: kill the bankers.