Burkhard Balz: Central bank policy in an evolving cash landscape
The desk interprets Burkhard Balz's recent remarks on central bank policy as a pivotal moment in the ongoing evolution of cash and digital currencies. Per the full note source, Balz emphasized the need for central banks to adapt their monetary frameworks to accommodate the changing landscape, particularly as digital currencies gain traction. This aligns with our view that the Deutsche Bundesbank's proactive stance could influence the euro's strength against the dollar in the coming months. The desk anticipates that shifts in policy could lead to increased volatility in EUR/USD as traders adjust their positions accordingly.
What the desk is arguing
Burkhard Balz stresses that central banks must adapt their policies to a changing cash landscape without undermining the public's trust in physical currency. He argues that cash remains essential for financial inclusion and privacy, even as digital payments grow.
The speech implicitly rejects the notion that cash is becoming obsolete, highlighting the Bundesbank's efforts to maintain cash infrastructure and explore digital euro options as complementary rather than replacement tools.
Where it sits in our coverage
Our coverage aligns with Balz's view that cash will persist as a key pillar of the monetary system, though we see the transition to digital currency as more accelerated than his tone suggests. Our consensus target for EUR/USD remains 1.07, with a firm spread of 1.04–1.12 through 2026.
Firms like Commerzbank expect EUR/USD at 1.12 (Dec 2026) while Deutsche Bank forecasts 1.04 (Mar 2026). This divergence reflects differing views on the speed of digital adoption and its impact on FX flows.
How other firms see it
Goldman Sachs is aligned with Balz's balanced view, forecasting EUR/USD at 1.10 (Dec 2026) as they expect gradual digital transition. Morgan Stanley is contrary, expecting more rapid digital disruption to weaken EUR/USD to 1.02 (Dec 2026).
- Goldman Sachs: aligned, target 1.10 (Dec 2026)
- Morgan Stanley: contrary, target 1.02 (Dec 2026)
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Balz reaffirms Bundesbank's commitment to cash as a public good.
- 02Central banks must balance digital innovation with cash accessibility.
- 03EUR/USD outlook depends partly on digital currency adoption pace.
Market implications
The speech supports a neutral-to-slightly-positive view on EUR/USD as it reinforces institutional support for cash, potentially reducing downside risks from digital disintermediation.
Risks to this view
If digital euro implementation accelerates or if cash usage declines faster than anticipated, EUR/USD could face depreciation pressure due to structural shifts in money demand.
Sources & References
How we cover this story