Joachim Nagel: Central Banks Must Embrace CBDCs

During a panel session at the Innovation Summit, hosted by the Bank for International Settlements on May 6, Joachim Nagel, President of the Bundesbank and a member of the European Central Bank (ECB), emphasized the crucial need to revise central bank business models and swiftly introduce central bank digital currencies (CBDCs).

Speaking in Basel, Switzerland, Nagel highlighted the uncertainty surrounding central banks, suggesting that the traditional business model of these institutions may be less robust than before.

"If you had asked me 20 years ago whether the business model of a central bank could be destroyed or not, I would have said no," Nagel noted.

"Now I'm not so sure anymore - and that's why we are here. We need to work on our business model. And distributed ledger technology (DLT) is just a means, an instrument, that could help us achieve this goal."

Nagel underscored the importance of integrating distributed ledger technology (DLT), particularly in the context of the decreasing attractiveness of physical cash.

"We need to accelerate in this matter," he added. "If part of your core product loses attractiveness, you have to think about another new core product."

French ECB member Francois Villeroy de Galhau also addressed central banks and new technologies during the same BIS conference. Galhau suggested that banks consider using digital currencies for wholesale and retail transactions, emphasizing the role of central bank money as a stable anchoring for the financial system.

"The way we provide central bank money must be adapted to the 21st century, to ensure that central bank money retains its fundamental role: this role is not about being the dominant means of payment, but about being a stable anchor for the financial system. That's why I believe that sooner or later we will need a central bank digital currency for both wholesale and retail transactions."

The ECB is actively developing a digital version of the euro, aiming to ensure that central bank money remains relevant in the digital era. This project, slated to be completed by October 2025, aligns with the growing trend of digitization in the financial sector.

Similar interest in CBDCs has been shown by other central banks, such as Sweden and Israel, where a pilot project for the digital shekel has been completed, and the Bank of Israel views CBDCs as a means of innovation rather than a threat.