Germany’s central bank chief pushes for sovereign digital euro, still sees Bitcoin as ‘digital tulip’

Bundesbank president Joachim Nagel says the European Union needs state-controlled digital currency as a safeguard against private sector dominance in global finance.

Joachim Nagel, head of Germany’s central bank, isn’t changing his mind on crypto, pushing for a digital euro to help Europe stay financially independent.

Speaking at an OMFIF event at the London School of Economics, Nagel stressed that the European Central Bank should remain cautious about monetary policy, dismissing Bitcoin (BTC) as “more like an asset class” and describing it as “the opposite of transparent.” He also called the cryptocurrency with a $2 trillion market cap a speculative bubble, comparing it to a “digital tulip.”

Commenting on calls from some central banks to start holding Bitcoin as a reserve, Nagel said central banks should remain skeptical.

“This is not something central banks should look at. This is not a liquid form of something you want on the balance sheet. We should be very cautious here.”

Joachim Nagel

Instead, Nagel argued that a digital euro would help Europe stand firm against private sector dominance, as central bank digital currencies “will play a role in future resilience [of Europe].” The Bundesbank chief also warned that foreign payment systems could be “used in a digital environment as a form of weapon,” but didn’t elaborate on the matter.

Speaking at the DZ Bank Capital Markets Conference in 2024, Nagel emphasized that financial institutions and other payment service providers processing digital euro payments “would not be allowed to use personal and transaction-related data for commercial purposes.” He noted though that this restriction would only be lifted if users explicitly granted consent.

Europe divided over Bitcoin as reserve asset

In late January this year, Czech central bank governor Ales Michl suggested using Bitcoin as a reserve asset for the central bank. The idea got some crypto folks excited, but it didn’t sit well with all policymakers. European Central Bank president Christine Lagarde shut it down, saying that “reserves have to be liquid, that reserves have to be secure, that they have to be safe.”

After Michl’s proposal, the Czech National Bank’s board asked for a study to look into Bitcoin as a reserve asset. But now, sources say the study could take months to finish. And even if it backs Bitcoin purchases, the CNB’s exposure would likely stay under 1% of total reserves, a far cry from the initially suggested 5%.