- The central bank of Netherlands has said that it is supportive of a central bank digital currency.
- The bank confirmed that it is “ready to play a leading role” in research related to central bank digital currencies.
The Central Bank of Netherlands, De Nederlandsche Bank (DNB), has recently released a report discussing its stance on a possible central bank digital currency (CBDC). The bank noted that it is supportive of digital currency and believes Dutch citizens will significantly benefit from it. In the report, the bank confirmed that it is “ready to play a leading role” in research related to central bank digital currencies.
The report outlines many benefits that a CBDC offers, including cost and speed efficiencies in cross-border payments. It stated that a CBDC “could serve as a backup to payments made in private money, considering that we become exceedingly dependent on private money in a rapidly digitizing payment system.” It also noted that there is an accelerating global decline in the use of physical cash due to the current pandemic. If the trend continues, CBDC could be used as a potential solution.
However, the report also points out possible risks. One major concern is that during times of financial crisis, a CBDC might cause bank customers to withdraw funds as they avoid risk by converting their commercial bank balances into CBDC. To prevent this, the bank says, “it is crucial that measures are taken to control the quantity of CBDC in circulation.”
According to the report, concerns raised by Facebook’s Libra currency are “the reason why the DNB and other central banks are now considering issuing their own digital currency.” The bank believes that the Netherlands is an ideal region to test the development of a CBDC.
While the Netherlands central bank could issue its own CBDC, a more likely path forward is a digital Euro, which would be issued by the European Central Bank (ECB) with member nations. In January, Christine Lagarde, president of the European Central Bank (ECB), said:
“Innovation in the area of payments is racing ahead in response to the urgent demand for quicker and cheaper payments, especially cross-border ones. The Eurosystem in general and the ECB, in particular, want to play an active role in this field, rather than just acting as observers of a changing world”.
The Association of German Banks, Bankenverband earlier published a position paper titled “German banks say: The economy needs a programmable digital euro!” The paper noted that German banks want government-backed digital currencies to become the norm rather than a decentralized alternative like Bitcoin or a corporate-issued currency like Libra. The association said:
“There can be no question that responsibility for the monetary system lies, and will continue to lie, with sovereign national states. Any currency provided either by banks or by other private companies must, therefore, fit into the state-determined system. Anything else would ultimately lead to chaos and instability”.