The Bundesbank has successfully tested issuing and trading government bonds in an environment organized by blockchain. What is surprising about this: The use of an e-euro was dispensed with.
In the EU, a digital euro (e-euro) that is the responsibility of the central bank is a big topic, and the European Central Bank has already set up its own website for this purpose. A decision is to be made in mid-2021 as to whether the ECB will be given a mandate for the e-euro; such a CBDC is already being extensively tested in euro countries such as France and Estonia. Observers are surprised by the latest step taken by the Bundesbank in Frankfurt am Main: Via press release, the Bundesbank reports a successful test run for the completely digital handling of government bonds – and emphasizes that it will manage without the e-euro in the process.
According to the Bundesbank, this was made possible by setting up an interface between conventional payment transactions and the central digital cash book (DLT). In this way, a “trigger” is triggered during issuance, purchase and later also trading on secondary markets when a payment action is confirmed and the change of ownership of the securities is then documented in the DLT. Thus, while the government bond is mapped as a token and thus blockchain-enabled, the monetary value in euros remains in classic fiat. The Bundesbank sees this solution as exemplary also for the further use of blockchain and DLT in interaction with the real economy.
But what pleases the Bundesbank astonishes experts. They interpret the announcement as a clear counter-position against the plans for the e-euro pursued by the ECB. In general, the Bundesbank is considered a blocker for an e-euro in the ECB’s alliance. Bundesbank President Jens Weidmann hardly misses an opportunity to question the sense and purpose of an e-euro. The latest objection raised by the Bundesbank is that, given the current negative interest rates, an e-euro would automatically cause citizens’ savings to shrink. Here the ECB saw itself forced to a clarification: In a CBDC for which it is responsible, household credit balances would not be affected by negative interest rates.
Conclusion: Does Bundesbank Seek Dispute with ECB over E-Euro?
The Bundesbank, led by Weidmann, may be taking a stand against an e-euro with its recurring sideswipes – but whether it will prevail is quite questionable. After all, German Finance Minister Olaf Scholz, Deutsche Bank and the German Banking Association have clearly spoken out in favor of the e-euro, and among ECB members, the proponents of a CBDC are just as clearly in the majority. One of their main arguments: If the ECB does not issue an e-euro, the euro area runs the risk of being eclipsed by private projects such as Facebook Diem (formerly Libra). The fact that an e-euro is technologically feasible was also recently demonstrated by the German bank von der Heydt.
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