German banker: Bitcoin and other digital currencies could cause financial crisis

German banker Jens Weidmann commented that digital currencies such as Bitcoin will cause a financial disaster. The banker hinted that digital currencies are very unstable and their market is subject to violent fluctuations. Weidmann said that people hope that banks will accept digital currencies so that ordinary people will trust this new type of currency.

An article in Business Insider further states that the banking system has the upper hand in the digital currency space because they have the power to print money. In other words, they are able to prevent financial collapse by creating more liquidity.

The article quotes Weidmann as saying:

This feature is particularly useful in times of crisis - converting bank deposits into official digital currency would require only the click of a button, and customers would definitely have an incentive to do so.

The author of the article also mentioned that the banker's point is that as long as banks have their own digital currency, they can prevent bank runs. They can provide people with digital assets so that they don't have to withdraw cash from the bank.

Weidmann's basic idea is that in the future, when money is fully digitized, it will be much easier to withdraw cash from a bank. Instead of going to an ATM or a branch to withdraw cash, customers can do it online. During a crisis, people usually withdraw cash from their accounts to keep their money safe, which can cause bank runs.

Banks and Cryptocurrencies

The banker and the Business Insider article are suggesting that digital currencies themselves will not cause financial crises. But as long as banks do not have absolute control over digital assets and cannot stabilize digital assets, financial crises will occur. What they mean is that people cannot trust cryptocurrencies, but they can trust regulators and bankers to help them manage their digital wealth.

This is also the argument of most banking groups at present. Many banks and banking elites have noticed the rapid growth in the value of cryptocurrencies such as Bitcoin and Ethereum. Therefore, they suggest regulating and banning these digital assets.

Recently, Babbitt reported on comments from investment bank Morgan Stanley, who believed that Bitcoin would not achieve further development without adequate regulation and control. In some places, courts have ruled that banks have the right to refuse to provide services to blockchain companies. This has already happened in Israel because "banks told the court that they were worried that criminal organizations would send their men to buy Bitcoin and transfer it to wallets they could control."

Not all banks share this view, though. In Russia, bankers want to regulate the currency, but they think it should be done under reasonable rules. They don’t want to control it and undermine its purpose. They certainly don’t think Bitcoin will cause a financial meltdown and destroy everything.