Legs and Regs

Netherland’s central bank, De Nederlandsche Bank (DNB), issued a report studying the effects of central bank-issued digital currency on public interest and on the financial system.

According to the press release accompanying the report, DNB undertook the study because consumers no longer use cash widely. Indeed, trends show that citizens infrequently use currency issued by central banks to pay for their purchases. Given this background and in light of Facebook’s decision to launch its own cryptocurrency, Libra, the DNB’s report considers the impact of issuing digital currency to consumers.

DNB highlights the benefits of bank-issued cryptocurrency, noting that it would promote the smooth function of the payment system in times of financial crises, such as the COVID-19 pandemic, where the central bank could serve as a digital backup to private money.

The central bank report also reviews risks associated with issuing cryptocurrency, and notes that in times of crisis, risks associated with digital currency could increase. However, the DNB proposes a central system that coupled with financial technology could mitigate such risks.