23 September 2019

SUERF: Central bank digital currency - institutional issues

The introduction of a central bank digital currency (CBDC) represents a radical change to the financial system and its institutional setting, and especially to the position of the central bank.

In many countries, including Sweden and the Netherlands, the pros and cons of the introduction of central bank digital currency (CBDC) are the subject of a dynamic debate. In the Dutch context, this is quite remarkable as the Dutch payments transfer system is one of the most advanced in the world. It operates virtually faultlessly, is very cost-effective and is extremely stable. Even during the financial crisis, it functioned perfectly. Moreover, it is an important source of innovation in the field of payments. For instance, the Netherlands, alongside Sweden, is leading the way when it comes to contactless payments. So there would seem to be little reason to make radical changes to the current system. But that is exactly what the Netherlands Scientific Council for Government Policy (WRR), an important adviser to the Dutch government, proposed in its report titled Geld en schuld (Money and debt) that was published in January 2019. The WRR explicitly recommends that every Dutch citizen should be given the opportunity to hold a payment account with the central bank. It talks about “creating an electronic equivalent of cash".

At first sight, this might not seem to be a particularly radical idea, but further consideration shows that it could have serious consequences for the stability of the banking system and the position of the central bank. Moreover, the WRR is not very exact in its recommendation. For example, a closer look at the topic reveals that CBDC is a so-called container concept: behind the term CBDC there exists a whole range of varieties of CBDC that differ widely in technology, scope and financial-economic impact.

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