China has been beating the drums for a while about trying to create a national digital currency. The People’s Bank of China (PBOC) has proclaimed for months that a digital yuan was imminent. The spread of the coronavirus seems to have delayed those plans for a while, yet it also highlights the fact that in an era of pandemics, digital payments are going to be far preferable to cash payments. But will the PBOC get beaten to the punch by other countries in creating a national digital currency?
The Dutch central bank, De Nederlandsche Bank (DNB), has thrown its weight behind central bank digital currencies (CBDC), hoping to become a center of CBDC experimentation within the eurozone. But under the right conditions and circumstances, it could become the first nation in the eurozone to issue a CBDC, and perhaps also the first in the world.
Among the member nations of the eurozone, the Dutch are by far the least likely to use cash in everyday purchases. In terms of number of transactions, the Dutch use cash less than half the time. And in terms of value of transactions, only about a quarter of transactions use cash. Contrast that with the European Central Bank’s (ECB) driving force Germany, where 80% of transactions are made with cash, accounting for 55% of value.
Among European nations, perhaps only Sweden is further down the road towards eliminating cash than the Netherlands are, which would make DNB the logical first issuer of a digital euro. While there are no firm plans in place yet to digitize the euro and turn it into a CBDC, the issuance of a digital yuan would certainly kick efforts towards a digital euro into high gear.
Even without a digital yuan, one would have to imagine that a digital euro is at the back of the minds of many European central bankers. The advantages in terms of cost, logistics, etc., are numerous. And with populations increasingly using digital, electronic, and non-contact means of payment, digital currencies are the wave of the future. It’s just a question of when central banks will get with the times and finally issue their own national cryptocurrencies.
Then of course the question will be whether these CBDCs can dethrone Bitcoin, Ethereum, and other private cryptocurrencies from their current positions. Cryptocurrencies have become extremely popular with both investors and consumers, not least due to their potential to grow in value. Contrast that to national currencies, which have grown consistently less valuable over the decades. Will central banks be able to overcome that stigma, or will they try to force private cryptocurrencies out of the marketplace in order to stifle competition?
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