Blockchain Is Not A ‘Breakthrough’ Technology, Says Bundesbank President

Blockchain, News | May 30, 2019 By:

Jens Weidmann, president of Bundesbank, the central bank of Germany, said that blockchain technology is more costly and less speedy than traditional systems.

The statement was based on the results of a trial project jointly initiated by Bundesbank and Deutsche Boerse in 2016. Weidman said that while the blockchain prototype fulfilled all “basic regulatory features for financial transactions,” its implementation proved expensive and slow compared with the current settlement mechanisms.

According to Weidman, smilar experiences have been made elsewhere in the financial sector, adding that despite numerous tests of blockchain-based prototypes, a real breakthrough in application is missing so far.

“For one, we’re not convinced blockchain can ever be successfully delinked from a coupon or token pay-off component without compromising the security of the system,” Weidman said. “Second, we’re not convinced the economics of blockchain work out for anything but a few high-intensity use cases. Third, blockchain is always going to be more expensive than a central clearer because a multiple of agents have to do the processing job rather than just one, which makes it a premium clearing service — especially if delinked from an equity coupon — not a cheaper one.”

Weidmann also talked about central bank digital currency, warning that it could potentially destabilize the financial system during times of crisis.

“Easy access to digital money could exacerbate bank runs in times of crisis, leading to a faster collapse of lenders, and that even in good times it would fundamentally change the business model of banks,” Weidmann said. “Easy access could increase volatility in demand for the digital money, which would have an immediate impact on central bank balance sheets.”