ECB’s Governing Council Member argues that CBDCs and traditional Fiat can go hand-in-hand

European Central Bank Governing Council member, Jens Weidmann claims that CBDC adoption does not mean the traditional fiat system is going to be an “endangered species”.

According to a Bloomberg report, he asserted that the digital wave does not pose a threat to the traditional banking system and institutions should not demand additional protection instead of integrating CBDCs into routine transactions.

“CBDC should be designed in a way that allows its users to reap its potential benefits as fully as possible while keeping its risks and potential side effects at bay,” the Bundesbank president said at a conference on Tuesday. “This does not call for banks to be protected like an endangered species.”

CBDCs may “spur on competition” among financial institutions

Amid the global wave of Central Banks’ Digital Currency adoption, certain global monetary officials have highlighted potential risks to the commercial banks’ business models upon mass conversions of fiat to CBDCs.

Furthermore, Weidmann also emphasized that CBDCs should be implemented with usage limitations instead of preventing any foreseeable damages to the traditional economic structure. However, he continued claiming that Central Banks do not need to be overprotective with CBDC adoption. Weidmann argued that CBDCs could push for healthy competition among financial institutions which in turn will lead to better services.

“On the upside, CBDC could spur on competition among banks and promote new services…Some banks might also become more cautious and reduce the potential for banking stress.”, said Weidmann.

Cross-Border CBDCs may cause credit-negative

While governments look forward to implementing Central Bank’s money, Moody’s Investors Service’s latest report claims otherwise. Moody’s recent credit outlook report has warned financial institutions that the widespread adoption of CBDCs may cause credit-negative for banks because of lowered fees and commissions. Furthermore, banks with active foreign currency payments, clearing, and remittance services will bore the burn of losses.

As the Bank of International Settlements (BIS) begins the first round of trials for Cross-Border CBDC settlements, by the name of ‘Project Dunbar’, Moody’s report highlights that the project can hamper the formerly massive profit margins.