DNB on CBDC and the digital euro

Ronald te Velde, Hans Croon
Connective Payments

At the Dutch Central Bank (DNB), Inge van Dijk heads the division responsible for payments and market infrastructure. She is vice-chair of the MOB (i.e. the local ERBP). Within the European System of Central Banks, she is a member of the Market Infrastructure Board and a member of the High Level Task Force Digital Euro. She also chairs the FSB working group Cross-Border Payments Alignment & Implementation. We asked Inge a number of questions about the perceived dilemmas surrounding CBDCs and the digital euro program of the ECB and DNB.

Photo of Inge van Dijk
Inge van Dijk, Director of Payments and Market Infrastructure at DNB

Digital euros vs cash

The ECB writes that when the digital euro comes, it will co-exist with other means of payment and will not replace other means of payment (i.e. cash). Why not? After all, cash is relatively expensive and unsafe (transport, storage, cleaning, thieves), and attractive to criminals and the gray economy (black market money)? Can’t digital central bank money offer the advantages of cash (high privacy, safe, trust) without the mentioned disadvantages?


“We at DNB want to reverse the trend that groups are experiencing a decline in the accessibility and availability of payment services. The aim is that as many people as possible can continue to pay independently. This concerns concrete matters such as opening a current account, receiving and activating a debit card, withdrawing and depositing cash, obtaining access to the balance and credits and debits, and issuing payment orders. We are not allowed to write off cash yet. It is public money, namely a claim on the central bank, it is necessary for many people to be able to arrange their finances independently and it can serve to a certain extent as a fallback option in the event of disruptions in the digital payment system. 

At the same time, we must be realistic. Precisely because digital payment systems have gained the upper hand, we are making an extra effort in the Netherlands and Europe for people who, for whatever reason, have difficulty with digital means. We want to guarantee accessibility without standing in the way of the further digitization of payment systems. Inclusiveness can be achieved in various ways. By guaranteeing access to cash. By teaching people who need it digital skills in the field of payments. And, if that is not possible, by creating alternative forms of physical service or by offering personal support: on location near the customer, via paper or by telephone. Everyone should be able to continue to participate independently in the payment system.”

Private vs public money

"Private money contributes to innovation in the payment system, while the convertibility of private money for public money is important for confidence in the money system."

One of the reasons for the introduction of a digital euro is the declining confidence in and stability of the monetary system: after all, this is increasingly in the hands of commercial parties such as banks and (also non-European) credit card companies. Confidence in this has been waning since the credit crisis. The digital euro is a safe haven by comparison. However, the ECB wants to prevent consumers and companies from massively converting their money to digital euros, for example in financial crises. There are methods to limit the amount of digital euros per person, for example by means of a fee (interest), withdrawal limits or by maximizing the amount per citizen. However, the more you limit the amount in circulation, the less movement there is in the ratio of private versus public money. What does DNB think about this trade-off?

“We believe it is important that consumers not only have access to private money, such as bank deposits, but also to public money, such as banknotes or the digital euro. Private money contributes to innovation in the payment system, while the convertibility of private money for public money is important for confidence in the money system. Private and public payment systems therefore complement each other and can function well side by side. Together they can strengthen the continuity and accessibility of the Dutch payment system. The trade-off is therefore between all public funds versus private funds, and the digital euro is an additional public resource.”

Adoption by the general public

The knowledge of CBDCs among the general public is limited. A DNB survey showed that half of the Dutch are interested in a current account with the central bank. They especially like the fact that it does not aim for profit. But at the same time, only 13 percent say they understand what is meant by digital euros. The arguments in favor are mainly macroeconomic, monetary and geopolitical in nature. Is this regarded as a problem for acceptance, and how does DNB intend to ensure that the Dutch will have a need for digital euros?

“It is true that knowledge is still limited, because that is in line with this phase of the research project. The DNB survey actually shows that even without further explanation, 50% of the Dutch would be interested in the digital euro. So there is potential. How this can be further shaped and which needs can be met is part of the research phase.”

Why would a consumer choose to pay with digital euros instead of (in a store) Apple Pay or (online) iDeal or Click to Pay? In other words: what will the added value be for a consumer?

“How the digital euro can be shaped and which concrete needs can be met is part of the research phase. We expect to be able to tell more about this next year.”

Data privacy

One of the potential benefits for consumers and businesses is greater privacy: their payment data could be in safer hands with the central bank than with commercial providers. To what extent can DNB allay the concerns that the data will be used for additional purposes? What remains of the perceived privacy advantage in a two-tier model? How is the assumption that digital euros are privacy-friendly in the eyes of the public tested?

“What degree of privacy will be met is a political issue. In a baseline scenario, a digital euro would provide people with a level of privacy at least equal to or higher than that of private digital solutions. In all cases – public and private – legislation will have to be complied with, such as making it available by order of the Ministry of Justice. This is no different for public solutions than for private solutions. The obligation to comply with these privacy requirements as fully as possible is felt even more strongly by a public institution, such as a central bank. 

When designing the digital euro, we are also looking at options to go beyond this baseline, but that requires the cooperation of legislators and political support. This could allow the digital euro to replicate some cash features and allow more privacy for lower value payments, which usually carry low risk in terms of money laundering, terrorist financing and violations of relevant EU law.”

"With the TerraUSD development, we have seen that the world of cryptos, DeFi and stablecoins is still in its infancy."

The role of stablecoins

The stablecoin TerraUSD went into freefall last May, even though it was supposed to be linked to the dollar. The LUNA also has only a fraction of its original value. The Terra is mainly used as an exchange currency for transactions between different cryptocurrencies. How do you assess the chance that the digital euro will eventually play a similar role, and can major volatility be prevented? How are such scenarios considered within DNB?

“Stablecoins aim for a stable value, but are not as stable as the name suggests. That much has become clear now that billions have evaporated in a short time. The issuers of stablecoins try to offer more price stability by linking them to, for example, a standard currency (often the dollar) or gold. This should make stablecoins suitable as a means of payment. With the TerraUSD development, we have seen that the world of cryptos, DeFi and stablecoins is still in its infancy. That is why we are working in the Financial Stability Board and the Bank of International Settlement to tighten up previously published recommendations to further regulate stablecoins in particular. The most important thing we look at is that users must be able to trust that sufficient private money reserves are held, and that this is communicated transparently. In the past, it has often been shown that this promise is not always kept. Of course, a stablecoin can choose the euro or the digital euro as a reserve, but for now cryptos are mainly minted in dollars.”

Monetary instrument?

One of the advantages of the digital euro is that the ECB and/or the central banks of the member states can stimulate or weaken the economy through direct monetary interventions. The question is whether this will eventually be politically allowed. Does this potential advantage play a role in the final decision to introduce a digital euro?

“The digital euro is not intended to be used as a monetary policy instrument.”

Competition between CBDCs

The ECB explicitly writes that there is no global competition or even race between CBDCs. Does DNB nevertheless see a risk that European citizens and companies will exchange their money for other CBDCs and will this influence the planning of the program?

“We agree with the ECB: there is no race and the schedule of the program will not be affected by this.”

June 2022

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