The Germany Central Bank, Bundesbank, is working on a blockchain technology project for setting up a decentralized network approach.
Bundesbank developing a blockchain project for sharing of data
A publication in the Supplement to the Official Journal of the European Union indicated that a Singapore non-profit foundation, Ocean Protocol, has been tasked with the development of a decentralized network for Bundesbank. According to Bundesbank, Ocean Protocol was picked since it is the only possible contractor for the job as there are no other comparable competitors. Bundesbank said that the purpose of the project is setting up a decentralized network approach. This will allow participants to get permanent, symmetrical access to data for the realization of real-time statistics updates while at the same time preserving the sovereignty of data.
The central bank will work hand in hand with the non-profit foundation in building a secure platform for transferring, publishing, and consuming private and public data. Recently the Bundesbank indicated that it was considering alternatives to a central bank digital currency. Interestingly this release will be a preview of what the alternative could entail.
Bundesbank wary of a central bank-issued digital euro
According to Burkhard Balz, an executive board member of the bank, the launch of CBDC as a store of value could threaten the financial system. As a result, there is a need to develop tools that can limit the digital euro’s use upon its launch. Balz said that people should be using the central bank-backed digital euro as a payment mode rather than a value store.
The reason behind the argument is that people can withdraw their funds and convert them into digital euros during a crisis, thus making funds a liability to the central bank. As a result, this will lead to structural disintermediation of the finance system and possibly dampen credit provision. To address such a scenario, Balz suggested that there should be a limit on the number of digital euros one will hold at a particular time or introduce an incentive to control demand.