New paper calls for digital cash implementation in the Eurozone

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Today, the Dutch NGO Ons Geld (“Our Money”), published a thought-provoking paper outlining how a digital cash scheme – a virtual euro – could fundamentally improve the money system in the Eurozone.

Ons Geld is the Dutch counterpart of Positive Money focused on monetary reform. Positive Money first proposed digital cash in 2016, a concept which has since gained a lot of traction both within central banks (1), civil society and politics.

The virtual euro would provide the public with an electronic version of notes and coins. In practice, this would involve offering people accounts at the central bank. Such ‘debt-free’ money would be just as convenient as bank-money, and safer than physical cash because it would be much more difficult to steal. This central bank electronic money would make the money system much safer and simpler, and put an end to governments’ ideas that big banks are “too big to fail”.

Following a successful citizens’ initiative supported by over 100,000 Dutch citizens, the Scientific Council for Government Policy (a Dutch Government agency) is due to present its conclusions on the topic later this year. More recently, two Dutch MPs tabled questions to the Finance Minister on the potential of the “virtual euro”. In addition, a recent report adopted by the European Parliament on Fintech also encourages experiments with digital cash.

A revolution for the payment system

Digital cash would make the money system safer and simpler. It would allow people to hold their electronic money in accounts either at the central bank or indirectly at the central bank via a fintech company. Such accounts would not be exposed to the risk of bank failures. The complexity of the present payment system would also be reduced, because digital cash technology would allow direct transfers from one account to another, without the need for interbank settlements using ‘reserves’. ‘Reserves’ is electronic money created ex nihilo by a central bank and sold to banks on-demand at the official cash rate plus a small margin. At present, neither non-banks, nor the public, have access to central bank reserves.

By shielding the payment system from the banking sector, digital cash would put an end to ‘systemic risks’ and ‘too big to fail’, inherent in the present bank-money system.

Edgar Wortman, author of the paper, said that “There is a digital revolution coming in money and payments anyway. Politicians have fundamental choices to seize this opportunity. If they don’t pay attention, however, those choices will be made for them by commercial enterprises, that undoubtedly prioritize their private interests.”

Not a central bank liability

An important debate has emerged on how central banks would account for digital cash. Ons Geld’s contribution to this debate contrasts with most central bankers’ views. According to the paper, the virtual euro should be seen as an entirely new intangible liquid asset, as opposed to a liability for the central banks.

“Just like bitcoin, virtual euro is not a claim on the issuing entity. One has to think of the authority administering the virtual euro as a public key register like the cadastral system, rather than a bank”, Wortmann explained.

In a second technical paper entitled “Deleveraging without a crunch”, Wortmann explains how such a scheme would help deleveraging debt overhang in the Eurozone.

The virtual euro could be a game changer in the Eurozone. It could help the Eurozone to overcome its current debt deadlock and regain an appetite for European integration.






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