The Bundesbank acknowledges having solved the optimal system to convert digital currencies to euros without threatening the role of conventional banking.
The latest movements of bitcoin in international markets and the effective support of large investment funds have changed the rules of the game. Despite the ups and downs in the price of bitcoin, inherent to its speculative nature. Cryptocurrencies are gaining strength from the increased use by relevant financial sector players. These days, Visa and Paypal have announced that they will accept the use of cryptocurrencies in payments. Even the ‘Financial Times’ accepts cryptocurrencies to pay for the subscription to the economic newspaper. Some years ago the experts said that the day that the capitalization of bitcoin reached 10 trillion dollars, it could be spoken of planetary importance. The level has already been exceeded with a price that reached over $ 60,000 per unit, currently closer to $ 58,000. Given this situation, it is not surprising that central banks are already accelerating their movements,
While the ECB and the National Securities Market Commission warn of the risk of investments in cryptocurrencies, the ECB tests to develop its own solutions away from ‘blockchain’. Now it is the Bundesbank that has confessed that it has made tests to open a bridge between cryptocurrencies and the euro on that same basis (which bypasses the blockchain as certification but does use the distributed transaction registry system).
German authorities have developed a technology that allows investors to buy and sell cryptocurrencies in exchange for central bank money, bridging a gap between two worlds that have traditionally seemed irreconcilable. The Bundesbank has been experimenting with the use of distributed ledger technology (DLT) to settle transactions with official money. The Bundesbank, which partnered with Deutsche Börse and the German government debt agency for this project, recently recognized that its solution was the first to allow those who sell securities on the blockchain to receive their profits in their central bank account. The technology could be rolled out to the entire eurozone even before the European Central Bank’s digital euro is launched, according to German central bank sources.
For Agustín Carstens, general manager of the Bank for International Settlements (BIS), cryptocurrencies “must strike a balance between reducing exposure to banking risk and the need to increase competition capacity and improve the experience with payment systems”. In his view, private financial institutions should facilitate the opening of bank accounts while “cross-border cooperation should ensure that central banks can continue to learn from each other and take advantage of the opportunities of digital currencies to improve cross-border payments.”
“It is possible to establish a technological bridge between blockchain technology and conventional payment systems to settle securities in central bank money without the need to create a central bank digital currency,” maintains the Bundesbank. During the tests carried out, a 10-year government bond was issued on the blockchain and traded, albeit only in test mode, by six banks: Barclays, Citibank, Commerzbank, DZ Bank, Goldman Sachs and Société Générale.
Trades were settled on the blockchain with the help of an “activation chain” connecting the assets on the distributed ledger with the eurozone payment system, dubbed Target 2. The ECB is exploring the creation of a digital euro to supplement cash in the next five years. But the Bundesbank has been lukewarm on this project, saying it could destabilize the banking sector by alienating depositors or weakening the financial system in times of crisis.