Germany's Central Bank Chief Backs CBDC for Eurozone Sovereignty

The president of Germany’s central bank, Joachim Nagel, has expressed support for the introduction of a central bank digital currency (CBDC) to safeguard European sovereignty and resilience. In a recent Q&A session with economists at the Official Monetary and Financial Institutions Forum (OMFIF) think tank, Nagel emphasized the importance of CBDCs in protecting the Eurozone's sovereignty.

Nagel views CBDCs as a public good that central banks should offer, citing their potential role in enhancing Europe's future resilience. He also raised concerns about the growing influence of US companies in the global payments sector, suggesting that they could pose a threat in a digital environment. To mitigate this risk, Nagel believes Europe should explore a backstop measure, such as a CBDC.

Regarding the impact of CBDCs and digitalization on the neutral rate of interest, Nagel stated that it is still too early to determine their effects. The neutral rate of interest is the interest rate that the European Central Bank aims to maintain to ensure stable inflation and full employment.

In addition, Nagel expressed skepticism about Bitcoin (BTC) serving as a reserve currency. He described Bitcoin as a "digital tulip" and criticized its lack of transparency. Nagel advised central banks to be cautious when considering Bitcoin as a reserve currency, stating that it is not a liquid form of asset suitable for a central bank's balance sheet.