Central banks need to revise their business model and embrace central bank-issued digital currencies (CBDCs) to remain competitive and maintain their stability role in the financial system, said Joachim Nagel, President of the Bundesbank and member of the European Central Bank (ECB).
A business model in crisis
Nagel pointed out that the central bank business model is in crisis, as physical money loses its appeal and central banks have to turn to new technologies to remain competitive. "If you'd asked me 20 years ago whether the central bank business model was 'destructible' or not, I would have said no," he said. "Now I'm not so sure – and that's why we're sitting here. We need to work on our business model. And distributed registry technology (DLT) is just one means, one instrument that could help us reach that point," he added.
The importance of DLT
Nagel stressed the importance of integrating distributed ledger technology (DLT) into the central banks' business model, as it could help improve the transparency and security of transactions. "We need to accelerate on all this," he said. "If part of your core product is losing its appeal, then you need to think about a new core product," he added.
ECB outlook
ECB member François Villeroy de Galhau also stressed the importance of adopting CBDCs for central banks. "We need to adapt the way we make central money available to meet the needs of the 21st century," he said. "We must maintain the fundamental role of central bank money: that role is not to be the dominant means of payment, but to be an anchor of stability for the financial system," he added.
ECB's CBDC project
The ECB is currently developing a digital version of the euro, having completed its survey phase to determine its design and technical details. The ECB expects the project to be completed by October 2025, when it should be ready for launch.
