Jan Weidmann, the President of the Bundesbank, holds some very unique thoughts on the topic of money, digitization, and the network effect of payment services. Speaking with Handelsblatt, he offers his perspective on opposing Libra, which is centered around a market-oriented approach rather than endorsing the launch of a state-backed competitor such as a digital euro, January 3, 2019.
A Case for Participative Capitalism
Facebook formally announced Libra in June 2019 and the result was nothing short of inconceivable chaos. Other than the head of companies like J.P. Morgan taking the time to doubt Libra’s ability to ship, governments from across the world condemned Facebook’s plans and stopped just short of legally dissolving the Libra Association. It’s safe to say it spooked everyone in the ecosystem from corporate citizens to government bodies.
Weidmann believes Libra doesn’t make sense for a region like Europe which has a well-functioning and widely accepted currency in the euro. Introducing Libra in Europe would only make the exchange rates and volatility risks emerge. However, he also concedes that Libra is a great idea for countries with a weak currency, and Facebook’s 2 billion users make them a force to be reckoned with from the get-go.
In a statement that is most unlike a high-ranking bureaucrat, Weidmann says his approach to solving problems doesn’t involve dragging the state into the picture at every opportunity. In order to ward off the threat from Libra, banks need to fight fire with fire. Making the commercial banking system cheaper to use, more accessible, and more efficient would be enough to deter Libra’s efforts. Rather than delegating technological innovation to the government, Weidmann suggest it should come from the private sector; as it always has before.
European Union’s Pragmatic Approach
Despite the comments from Benoit Coeure suggesting a system with a digital euro, where citizens hold direct deposits with the central bank, thereby cutting out the banking system, the European Union is still in the phase of research and development.
As seen with their “Euro Chain” initiative, revealed in late December when the ECB publicized their experiment with ‘anonymity vouchers’, these plans are just for information gathering purposes to see what is possible using blockchain-enabled digital currencies without cutting out banks and other intermediaries from the system.