Blockchain gets a bashing from Deutsche Bundesbank president

Blockchain gets a bashing from Deutsche Bundesbank president

Digital currencies, and their foundational blockchain backbone, have come in for a kicking from the president of Germany's central bank, who has characterized the former as a serious threat to the stability of the financial system, and the latter as no better than current technological solutions

In a speech given to a Bundesbank symposium, Jens Weidmann, reflected on the underwhelming outcome of a joint experiment with Deutsche Bourse on the use of blockchain technology for the settlement of cash and securities.

While the prototype developed to test the technology fulfilled all the relative objectives, and recorded some positive outcomes in terms of higher resiliency and lower cost of reconciliation, Weidman was unconvinced that it could be taken seriously as a replacement mechanism for current processes.

“The blockchain solutions did not fare better in every way: the process took a bit longer and resulted in relatively high computational costs,” he says. “Similar experiences have been made elsewhere in the financial sector. Despite numerous tests of blockchain-based prototypes, a real breakthrough in application is missing so far.”

Weidmann also sounded a note of caution on central bank experiments with digital currencies, which he warns have the potential to destabilise the financial system during times of crisis.

Easy access to digital money could exacerbate bank runs in times of crises, he said, leading to a faster collapse of lenders, an increase in volatility and an immediate impact on central bank balance sheets.

Comments: (4)

A Finextra member
A Finextra member 31 May, 2019, 15:05Be the first to give this comment the thumbs up 0 likes

This article reminds us of how and who has the ability to create money. 

These cryptocurrencies are created by whom?

Based on trust in what?

Then there is the question of the economics on Blockchain and the value. 


Truly of value when trust does not exist between the parties. 

Yet, what value when there is trust?

Russell Bell
Russell Bell - Fastbase Ltd - Wellington 03 June, 2019, 03:39Be the first to give this comment the thumbs up 0 likes

Understanding the nature of trust is key to understanding cryptocurrencies.  The purpose of a blockchain is to eliminate the need for a trusted-third-party.  So created-by-who doesn't matter; a decentralised cryptocurrency is not controlled by it's creator nor by any other individual or organisation.

Rather it's controlled by a decentralised, market-based mechanism that works to ensure the ledger is append-only; once a transaction is recorded it cannot be reversed.  This immense resistance to roll-back/charge-back (in the face of any kind of pressure) is what distinguishes a truly decentralised blockchain.  The same mechanism also makes it impossible for any central authority to alter the rate of new-money creation.  These two characteristics make a decentralised cryptocurrency a substantially different creature from a currency that's issued and controlled by a central bank.

Blockchain-based currencies (of the truly decentralised variety) aren't yet a competitive threat to traditional banks and they may never be, though it's a prospect banking consumers can be hopeful about, not fearful of.  Taxpayers too.

A Finextra member
A Finextra member 03 June, 2019, 18:28Be the first to give this comment the thumbs up 0 likes

When we reflect back on the creation of payment systems there was always soemthing "a market" in the middle.  The emergence of the trusted third party in many cases began as a Not for Profit mutually owned enterprise.  Yes maybe let these enterprises go public creates some of the challenge.  Is Ripple market driven or?

Csaba Czirjek
Csaba Czirjek - Cegeka - Hasselt 20 July, 2019, 22:56Be the first to give this comment the thumbs up 0 likes

@  Philip Andreae - "how and who has the ability to create money " - it's pretty much the same as the Fed creates money out of thin air and charges everyone on it.

Money is a matter of "trust" for exchange  (see  Tally stick).

I think the current financial system's owners got scared that they do not own the financial scheme (lie) anymore and pushing hard to get rid of cryptocurrencies (they're not in it...)