February 14, 2018 / 8:17 AM / 2 years ago

Digital money not an adequate replacement for cash, Bundesbank's Weidmann says

FILE PHOTO: Deutsche Bundesbank, German Federal Bank President Jens Weidmann gives a keynote to the ‘G20 Africa Partnership – Investing in a Common Future’ Summit in Berlin, Germany June 13, 2017. REUTERS/Axel Schmidt

FRANKFURT (Reuters) - Digital money issued by central banks would not be an adequate replacement for cash and would heighten the risk of a run on commercial banks, the head of Germany’s Bundesbank said on Wednesday.

The idea of a digital currency giving holders a direct claim on the central bank is being studied by Sweden’s Riksbank and has been touted by some academics as a way to extend the reach of monetary policy when interest rates on deposits are below zero.

But Jens Weidmann rejected it and defended the use of cash and means of payments that go through commercial banks.

“(Getting rid of cash) would be the wrong, completely disproportionate response to the policy challenges of the zero lower bound,” he told a Bundesbank conference.

“The same goes, obviously, for the introduction of digital central bank money with the aim of crowing out cash and enforcing negative rates across the board.”

He echoed the European Central Bank’s view that giving depositors the option to hold money directly at the central bank would exacerbate bank runs at times of trouble.

Weidmann added that it was up to central banks to promote faster and more efficient payment systems that would quash the appetite for private digital tokens such as Bitcoin.

Reporting By Francesco Canepa; Editing by Raissa Kasolowsky

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