Dutch fin regulator retains critical stance regarding central bank digital currency

Maria Nikolova

The DNB will investigate the possible applications of CBDC for transactions in the financial markets.

The Netherlands Central Bank (DNB) has earlier today published its Payments Strategy 2018-2021, reiterating its support for innovative fintech solutions and stressing its skepticism with regard to cryptos.

The regulator noted that cryptos, such as Bitcoin, are only used to a very limited extent for purchases but added that the risks in the crypto market are rapidly increasing.

Many central banks, including the DNB, investigate the benefits of the technology behind Bitcoin, the distributed ledger technology (DLT), for example for payments between banks. The Dutch regulator agrees that this technology may have positive effects in some areas: its use could lead to more efficient payment markets, lower costs and a greater resilience to cyber attacks. Several central banks also look at the possibilities of issuing a digital version of banknotes and coins, also known as central bank digital currency (CBDC).

In the near future, the DNB plans to examine whether the blockchain and the DLT can contribute to improving the robustness and efficiency of the Dutch payment system. In addition, regulator will continue to investigate the potential of CBDC. For the time being, however, DNB retains critical attitude towards CBDC, given the uncertainties and risks associated with it. For example, CBDC makes financing for banks more expensive and undermines their ability to provide credit. In addition, CBDC could speed up a bank run in the event of a crisis. The DNB investigation will also focus on the possible use of CBDC for transactions in financial markets. The research is conducted in collaboration with other central banks.

This stance is in tune with the comments made by the DNB in January this year, when the regulator published a Position Paper, saying it does not see cryptocurrencies as posing a risk to the financial system stability, as the outstanding value of the cryptocurrency market is small compared to markets of fiat currencies like the euro and the dollar. But the bank noted that sudden depreciation of the value of cryptocurrencies and certain tokens (the result of ICOs) may lead to a significant harm to consumers and warned that there is no safety net against such losses.

Back then, the regulator also noted that it sees certain potential in the technology behind cryptocurrencies, that is, blockchain. The regulator said it had been working on four projects based on blockchain since 2015. The aim was not to launch a crypto coin, but only to understand the technique better. The results of these studies confirm that the technology is not yet mature enough to play a role in the Netherlands’ payment traffic – the system is too slow, too few transactions are executed per second, and the technology is not sustainable.

The DNB said that the technology was nevertheless interesting and may eventually offer opportunities in the financial world. The regulator underlined the benefits of blockchain for certain tasks such as the validation of documents, verification of identities and transactions.

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