The current monetary system dates back to the 20th century. It uses paper to regulate trust. That system no longer suffices. We need a new system.
Book money is being used less and less. Consumers are more and more living cashless. Without the need for cash book money, the age of the internet has given rise to new technologies like Blockchain. This technological innovation has led to the global adoption of digital currencies: cryptocurrencies. Currently, cryptocurrencies such as bitcoin are not an asset class, but they will become more robust over time, writes Christian Nolting, Chief Investment Officer at Deutsche Bank, in a special report (Nolting, 2021).
Other countries’ governments are already working on a digital currency (Kiderlin, 2021). Russia, for example, wants to introduce a digital rouble, partly to circumvent sanctions. Sweden is perhaps the most advanced and may introduce the e-Krona as early as this year, according to analysts at the investment bank HSBC. The use of cash is declining rapidly in Sweden. Residents of the country are therefore almost entirely dependent on private banks for their money. Therefore, the central bank wants to offer them an alternative.
Therefore, the question is, is the Netherlands taking any steps towards creating a digital currency? The Dutch Central Bank (DNB) announced during a hearing that a number of experiments with digital coins are underway (Kiderlin, 2021). DNB’s preliminary conclusion is that the currency is not yet functioning properly from a technical point of view. Among other things, the transaction speed is too low. We are looking into it with our fellow central banks’, says head of payments Petra Hielkema.
In my view, if central banks don’t intervene in a timely manner, they are allowing unregulated cryptocurrencies to become ‘mainstream. This is shifting the power of the government over currencies, towards a decentralized entity. Governments are in danger of losing control over parts of monetary policy in this way. Therefore, an intervention is necessary.
Nevertheless, there are also concerns over the use of digital currencies for criminal activities, these will have to be taken into account when governments aim to initiate a digital currency.
References
Nolting , C. (2021). Deutschebank April 2021 CIO special . deutschewealth.com. Retrieved October 8, 2021, from https://deutschewealth.com/content/dam/deutschewealth/cio-perspectives/cio-special-assets/a-tale-of-two-siblings-cryptocurrencies-and-cbdc/CIO%20Special%20-%20Eine%20Geschichte%20von%20zwei%20Geschwistern%20-%20Kryptow%C3%A4hrungen%20und%20CBDC.pdf.
Kiderlin, S. (2021, April 27). Gebruik van Cryptomunten Zal afnemen door komst digitaal Geld Van Centrale Banken, zegt Deutsche Bank. Business Insider Nederland. Retrieved October 8, 2021, from https://www.businessinsider.nl/gebruik-cryptomunten-bitcoin-afname-digitaal-geld-centrale-banken/.
Thank you for the interesting insights! I am from Sweden and can confirm cash is barely used anymore. I completely agree with the synopsis that governments need to adapt to the new decentralized currencies, what do you think would be the best way to intervene? Since cryptocurrencies are inherently decentralized, how can governments enforce their sovereignty through digital currency? It will be interesting to see how governments respond in the coming years, and see how cryptocurrencies will grow as the technology becomes more widely accepted.