Dutch central bank makes case for own digital currency

AMSTERDAM, April 21 (Reuters) - The Dutch central bank (DNB) said on Tuesday it would like to experiment with a digital currency issued by itself and other European central banks, as the use of cash rapidly diminishes.

A so-called central bank digital currency would allow citizens and companies to settle payments through accounts held directly at the central bank, and could serve as a back-up to the digital money offered by commercial banks.

“This could strengthen the confidence in the monetary system in times of uncertainty,” DNB said.

Central banks issue the bank notes and coins in circulation, while digital money is made available by commercial banks through the accounts and loans they offer their clients.

The use of cash is falling rapidly in many European countries such as the Netherlands, where two thirds of all payments last year were digital.

“Therefore companies and citizens pay less with money issued by the central bank,” DNB said.

“This raises the question whether the central bank should issue a form of money that better fits their needs.”

A central bank currency could prevent countries from becoming overly dependent on private money alone, DNB said citing the current coronavirus crisis as a case in point.

“Many stores now ask clients specifically not to pay in cash, which effectively means that only private money is accepted,” it said.

DNB also singled out private initiatives such as Libra, the digital currency Facebook wants to introduce, as a possible threat to monetary stability.

“But (Libra) also shows weaknesses in our payments system. Which is part of the reason why DNB and other central banks are now considering issuing their own digital currency,” it said.

Any decision on the introduction of a central bank currency needs to be made by the euro zone countries together, but DNB said it was ready to take an important part.

“We are prepared to play a leading role,” the Dutch central bank said. “The Netherlands is a good place to start.”