Angela Merkel is not stepping in as Mr Draghi launches new €50 notes
And he says banks may be unprepared for the outcome of a spike which could cause wipe-out for the value of the euro.
Bundesbank executive board member Andreas Dombret issued a very targeted and stark warning to banks this morning.
And he said risk managers should beware as most of them have never lived through a period of significant rates rises which can lead to hyperinflation.
Germany's central bank has been lobbying the European Central Bank (ECB) to end its £1.95trillion (€2.3tn) bond-buying program known as quantitative easing, which has been active since January 2015, over concerns it is holding the country's economy back.
Let's face it, there are quite a number of risk managers who have never seen interest rates rise
German Bundesbank executive board member Andreas Dombret
Policy chiefs at the Bundesbank have directly targeted the bank's Italian chief Mario Draghi over the programme which is allegedly saving debt-ridden euro states from default.
Now Mr Dombret is warning banks to be on their guard and be prepared for "change" and "sharp rises".
He told CNBC: "Let's face it, there are quite a number of risk managers who have never seen interest rates rise and who have never seen the interest rate risk and even thought about (it) and have concentrated on credit risk and have concentrated on liquidity risk, so it's about time to prepare for a potential change.
The new €50 note is coming to European cities as Draghi continues his QE splurge
"Should there be sharp rises in interest rates that of course would be a challenge for any bank."
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Mr Draghi's QE strategy has eerie similarities to monetary policies that have previously caused extreme hyperinflation in Germany such as the Wiemar crisis.
That economic crisis, which caused the rapid devaluation of the Deutsche Mark brought Germany to its knees.
It was sparked in 1921 and lasted until 1924 after Germany defaulted on repatriation costs following the First World War and the country's currency became worthless.
German Emperor Wilhelm II and the German parliament hatched a plan to fund the war entirely by borrowing.
They also began a programme of printing money without the economic resources to back it up.
During that period interest rates went through the roof and hit citizens hard.
A loaf of bread which cost 250 marks in January 1923 had risen to 200,000 million marks in November 1923.
Mrs Merkel has refused to stop Draghi printing money
With at least six eurozone countries now showing signs of serious default risk, German bank leaders are getting nervous.
However despite the forthcoming federal elections in September, the country's Chancellor Angela Merkel has so far said she will not intervene on central bank policy.
In January she said: “We won’t exercise any influence over the European Central Bank, so I can’t and I don’t want to change the situation as it is now.”
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Meanwhile German commentators have warned the country has become a "hostage" to the debt ridden euro project.
Influential conservative paper Frankfurter Allgemeine Zeitung opined: “Waiting for higher interest rates may soon appear like waiting for Godot
“The ECB has become hostage of indebted countries.”