A top German banker, Jens Weidmann, commented Wednesday that digital currencies like bitcoin could cause a financial catastrophe. The banker alluded to the idea digital currencies are unstable and prone to violent fluctuations on the market. Weidmann said for people to expect banks to adopt digital currencies so the average citizen begin to have faith in them.
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A Business Insider article further suggested the banking system has a leg up on digital currencies, because they have the ability to print as much money as they want. In other words, they can avert a financial collapse by magically creating more liquidity.
The article quoted Weidmann, saying, “This is a feature which will become relevant especially in times of crisis – when there will be a strong incentive for money holders to switch bank deposits into the official digital currency simply at the push of a button.”
The article’s author also said the banker’s position was that when banks have their own digital currencies, they can use various features to protect the banks from going on bank runs. They could provide people with digital assets so they don’t start taking all their cash out of the bank. The article read:
Weidmann’s basic point is that by making currencies fully digital in future, withdrawing money from a bank would become much more simple. Instead of physically having to visit a cashpoint or bank branch to withdraw cash, customers could do it online. In times of crisis, when people tend to take money out of their accounts so they can have the perceived safety of cash, causing the phenomenon of the bank run.
Trust In Cryptocurrencies; Various Banking Narratives
What the German banker and Business Insider article imply is that digital currencies will not cause a financial crisis alone. A financial crisis will only occur if banks do not have absolute dominion over digital assets, in order to help stabilize them. They are suggesting that people cannot trust cryptocurrencies, but they can trust the regulators and bankers to control their digital wealth for them.
This is a current theme within the banking conglomerates’ narrative. Many banks and banking elites have taken notice of the stellar rise of cryptocurrencies, especially bitcoin and Ethereum. In this sense, they have issued commentary about regulating and usurping these digital assets.
Recently, Bitcoin.com covered commentary by Investment Bank Stanley Morgan, in which they said bitcoin would not grow without adequate regulations and control. These controls presumably include the use of “permissioned blockchains.” In some places, courts have actually given banks authority to deny service to blockchain-based companies. This happened in Israel, because “The bank told the court that it fears how criminal organizations can send their ‘monkeys’ to buy bitcoins and transfer them to wallets under their control.”
However, not all banks have had as a heavy-handed mindset. In Russia, bankers want to regulate the currency, but they want to embrace it as well. They do not appear wanting to control it to the point of trying to undermine its original purpose. They certainly do not believe the currency will cause a financial collapse and destroy all the things.
Will cryptocurrencies like bitcoin remain unstable and volatile without help of central bankers? Let us know what you think in the comments below.
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