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Dutch Central Bank Aims to Play Leading Role in Developing CBDC in Europe as Part of Plan to Become Increasingly Digital

The Dutch central bank, De Nederlandsche Bank made an announcement in its bulletin, saying that it aims to become the European leader in the development of central bank digital currencies (CBDCs). The report highlighted that the topic of CBDC has gained more public exposure in the Netherlands than in “several other euro area countries for several reasons.”

The Dutch central bank has a positive outlook on CBDCs, as it believes that central bank money is essential to preserve as it is important for people to maintain essential trust in the monetary system.

The European Central Bank (ECB) previously expressed its interest in launching a digital Euro and stated that they have been doing theoretical research and practical experimentation. The report stated that the Netherlands could be a suitable testing ground for its testing. Even after evaluating the potential risks of CBDCs, the Dutch central bank said, “We are ready to play a leading role.”

The central bank emphasized that the use of cash is declining in the country, signaling that its citizens are using less central bank-issued currency for purchases. A CBDC could potentially allow more diversity in the payments market, as well as making cross-border payments to be more efficient, according to the central bank.

Similar to other countries in its catalyst for development for the digital payments, the report stated, “Many stores now ask clients specifically not to pay in cash, which effectively means that only private money is accepted. Due to the coronavirus pandemic, using cash has become more risky due to its risks of transmission.

However, the Dutch central bank was not included in the working group formed by six central banks to share experience on use cases on CBDCs. The six central banks were: the Bank of Canada, Bank of England, Bank of Japan, European Central Bank, Sveriges Riksbank, Swiss National Bank, and the Bank for International Settlements.

Sweden’s central bank has also started testing an e-krona, its CBDC to be run on blockchain, to simulate everyday banking activities, including payments, deposits, and withdrawals from a digital wallet on a mobile phone.

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Bank of France Becomes the First to Successfully Test Out the Digital Euro on Blockchain

The French Central Bank, Banque de France has recently successfully trialed a central bank digital currency (CBDC) – the digital euro, operating on a blockchain.

The Bank of France experimented with the use of a central bank digital currency to test a sale of securities, which was carried out by Société Générale Forge.

Banque de France launched a program of experiments to test out potential central bank digital currency (CBDC) aimed for interbank settlements. Potential participants have been invited to submit their applications to experiment with the use of a digital euro.

The three main objectives of the CBDC experiment includes identifying benefits, analyzing potential risks, and modeling as CBDC-based interbank settlement.

A maximum of ten CBDC-related applications created by groups or individuals would be selected based on “innovative nature” as a major criterion for selection. The French central bank is only accepting applications submitted by applicants within the European Union, or in a state party to the European Economic Area agreement. The results of the selection process will take place on July 10, 2020.

Banque de France is looking to trial new experiments in the coming weeks with other industry players, as the call for applications started on March 27.

Although the official announcement did not specify the exact details of the current pilot program, it did emphasize that the current pilot program is focusing on wholesale rather than the retail market of the uses of the digital euro.

In November 2019, at the Global Blockchain Congress which took place in Malaga, Spain, the European Central Bank (ECB) confirmed that it has been working on a digital euro. The Association of German Banks released a detailed plan for a crypto-based digital Euro, which will be launched by regulators.

The Dutch claims CBDC has gained more exposure in the Netherlands than other euro areas

The Dutch central bank, De Nederlandsche Bank said that it aims to become the euro leader in the development of central bank digital currencies. The report highlighted that the topic of CBDC has gained more public exposure in the Netherlands than in “several other euro area countries for several reasons.”

De Nederlandsche Bank has a positive outlook on CBDCs, as it believes that central bank money is essential to preserve as it is important for people to maintain essential trust in the monetary system.

Italian Banking Association Wants to Join in on the ECB Digital Euro Central Bank Digital Currency Project

The Italian Banking Association, Associazione Bancaria Italiana (ABI), has announced that they want to participate in projects and experimentations of a European central bank digital currency (CBDC), recently known as the digital euro.

The ABI has set up an expert group last year to explore cryptocurrencies and digital assets and derived specific considerations by the committee. The banks believe that a programmable digital currency represents and innovation that is able to modify the way people conceive and exchange money.

The association of Italian banks has had experience working with distributed ledger technology on the Spunta DLT project, and “want to be part of the change that comes from such an important innovation like digital currency.”

Spunta Banca DLT is a project headed by the ABI and is operational for the interbank reconciliation process, and 55 banks have been operating on the blockchain as of May 2020. Spunta uses R3’s Corda Enterprise to automate the reconciliation of transactions, moving to real-time management for the reconciliation process.

The Italian banks emphasized on the importance of complying with EU regulations, and to protect the personal data privacy of their citizens. With the use of technology to create digital money, the ABI believes the potential currency must gain maximum trust from the public, therefore high standards of regulatory framework, security, and supervision must be put in place.

With the potential availability of a CBDC, the association believes this could foster peer-to-peer value transmission, to facilitate cross-border transactions, while reducing heavy administrative processes. The press release read:

“A key success factor for the adoption of CBDC is to reach a frictionless user experience, ensuring at the same time full interoperability between [the] digital and analogical world and a complete circularity among all ecosystem actors.”

Bank of France successfully tests out the digital euro

The French Central Bank, Banque de France, has recently successfully trialed a central bank digital currency CBDC – the digital euro, operating on a blockchain.

Banque de France launched a program of experiments to test out a CBDC, aimed for interbank settlements, and participants have submitted their applications to experiment with the use of the digital euro.

In November 2019, at the Global Blockchain Congress, which took place in Malaga, Spain, the European Central Bank (ECB) confirmed that it has been working on a digital euro. The Association of German Banks released a detailed plan for a crypto-based digital Euro, which will be launched by regulators.

Dutch central bank also aims to play a leading role in the CBDC

The Dutch central bank, De Nederlandsche Bank, believes that central bank money is essential to preserve as people need to maintain essential trust in the monetary system.

The Dutch central bank emphasized that the use of cash is declining in the country, signaling that its citizens are using fewer central bank-issued currency for purchases. A CBDC could potentially allow more diversity in the payments market, as well as making cross-border payments to be more efficient, according to the central bank.

Bank of France Announces HSBC, Accenture Among the 8 Successful Applicants of the CBDC Experimentation Program

Earlier this year, Banque de France, the French central bank launched a program of experiments to test out the potential central bank digital money aimed for interbank settlements.

Potential participants have been invited to submit their applications to experiment with the digital euro, and Banque de France announced the 8 successful applicants: Accenture, Euroclear, HSBC, Iznes, LiquidShare, ProsperUS, Seba bank, and Société Générale Forge.

The program of experiments was launched in late March 2020, where the central bank asked participants to submit their applications before May 15, 2020. The French central bank is open to test out new technology, although it did not specify using blockchain. The three main objectives of the CBDC experiment includes identifying benefits, analyzing potential risks, and modeling as CBDC-based interbank settlement. It was noted that a maximum of ten CBDC-related applications created by groups or individuals will be selected based on “innovative nature” as a major criterion for selection.

The successful candidates will be able to explore new methods of exchanging financial instruments, excluding cryptocurrencies against the CBDC. Testing of the regulation of the digital euro in order to improve the conditions of execution of cross-border payments and the successful applicants could also review the methods of making CBDC available.

The French central bank will be working closely with the 8 successful applicants to carry out the experiments in the coming months.

The official report from the Bank of France read:

“The lessons learned from these experiments will constitute a direct contribution to the more global reflection conducted by the Eurosystem on the benefits of a central bank digital currency. These experiments also illustrate Banque de France’s commitment to innovation, which was recently chosen to host, with the Deutsche Bundesbank and the European Central Bank, a new joint innovation center in Europe within the framework of the Innovation Hub of the Bank for International Settlements.”

Banque de France successfully trialed its first experiment with the digital euro on blockchain, to test a sale of securities, which was carried out by Société Générale Forge.

The Dutch Central bank also wants to play a role in developing a CBDC in Europe

The Dutch central bank, De Nederlandsche Bank made an announcement in its bulletin, saying that it aims to become the European leader in the development of CBDCs. The report highlighted that the topic of CBDC has gained more public exposure in the Netherlands than in “several other euro area countries for several reasons.”

Tezos Blockchain Chosen for French Digital Euro by Societe Generale-Forge

Societe Generale-Forge, a tech startup by French investment bank Societe Generale, has selected the Tezos blockchain for its central bank digital currency (CBDC) experiment as part of the French central bank’s digital euro experiment.

Societe Generale-Forge recently announced its plans to use Tezos for its digital euro stablecoin, in collaboration with Nomadic Labs, a major Tezos development firm. According to the recent announcement, Societe Generale-Forge decided on Tezos for a few reasons: its on-chain governance, proof-of-stake consensus model, and verified smart contracts.

Banque de France, the French central bank previously launched an experiment program to test out the use of central bank digital money aimed for interbank settlements. Societe Generale Forge was one of the 8 successful participants invited by the central bank to explore new methods of exchanging financial instruments. The French central bank also noted that it would be working closely with the 8 successful applicants to carry out experiments in the coming months. The press release from the French central bank read:

“These experiments also illustrate Banque de France’s commitment to innovation, which was recently chosen to host, with the Deutsche Bundesbank and the European Central Bank, a new joint innovation center in Europe within the framework of the Innovation Hub of the Bank for International Settlements.”

Tezos was founded by Arthur and Kathleen Breitman, based on the challenges Bitcoin was facing and called Tezos the first “self-amending” blockchain. The Tezos network enables unique features, including on-chain governance, liquid proof-of-stake, and formal verification of smart contracts.

Tezos’ on-chain governance prevents unnecessary splits by allowing token holders to vote for the developer’s proposal after an initial testing period during which the Tezos community examines and comments on the suggested upgrade. Tezos also uses a unique proof-of-stake model based on “liquid democracy,” a fluid cross-over between direct and representative democracy.

Tezos’ functional programming languages also sets the platform apart from other smart contract platforms like Ethereum, as it uses OCaml and Michelson, while Ethereum uses solidity. Tezos’ smart contracts’ approach can mathematically guarantee that a program is correct, known as formal verification of smart contracts.

Nomadic Labs will also be participating in the project by contributing its technological expertise. Nomadic Labs President Michel Mauny said:

“The Tezos project, strengthened by its technical capabilities, its adaptability, and its strong community, is already present in various projects, both in France and abroad. We are especially pleased to see this technology selected by Societe Generale-Forge, and to reaffirm, once again, that the quality and expertise of our engineering is rewarded.”

ECB President Lagarde: Digital Euro CBDC Will Complement Not Substitute Cash

Christine Lagarde, President of the European Central Bank (ECB), said that a CBDC or digital euro would most likely work in tandem with fiat currency, not replace it.

The central bank digital currency (CBDC) being developed by the European Union will most likely not fully replace the euro according to ECB President Christine Lagarde.

“A digital euro could be a complement to, not a substitute for cash,” said Lagarde speaking at a virtual meeting of the Franco-German Parliamentary Assembly on Sept. 21. Lagarde said that while the ECB was exploring and assessing the risks of a CBDC, it was unlikely it would ever fully replace fiat currency.

Lagarde said:

“It could provide an alternative to private digital currencies and ensure that sovereign money remains at the core of European payment systems.”

On Sept.10, during an online conference with the Deutsche Bundesbank, President Lagarde said that consumer preferences have seen an increase in digital contactless payments, with Europeans taking to online platforms for their retail needs during the pandemic. With the digital revolution at our footsteps, “more than four in five Europeans regularly use the internet, up from one in five two decades ago,” said Lagarde. Global payments have been increasingly on the surge, as the pandemic has driven the digitization trend forward.

The ECB President also said that a taskforce to study the risks and potential effects of a CBDC would be announced this month, but that the European Union had not reached consensus on the introduction of a digital euro.

Euro Money Printer Goes Brrr

On Sept 10, the European Central Bank also announced it would not alter its interest rates and COVID-19 stimulus programs despite a strong euro—which Bitcoin billionaire Tyler Winklevoss called a “powerful advertisement for Bitcoin.”

The ECB stimulus money printing and interest-free lending to businesses appears set to continue as it announced it would not be making any immediate changes to raise inflation or to alter its Pandemic relief program which remains at a total of 1.35 trillion euros.

Bitcoin billionaire Tyler Winklevoss was extremely critical of the ECB’s announcement—to continue to keep refinancing operations, marginal lending facility and deposit facility unchanged at 0.00%, 0.25% and -0.50%, respectively.

Winklevoss said:

“The European Central Bank’s refinancing rate is 0% and its deposit rate is -.5%. This means it is free to borrow money, but actually costs you money to save. Thinking face This is both a potent recipe for inflation and powerful advertisement for #Bitcoin.”

Galaxy Digital CEO Mike Novogratz Says Launch of Digital Euro Will Drive Bitcoin Adoption

Galaxy Digital CEO Mike Novogratz has responded to a recent announcement made by the European Central Bank president Christine Lagarde that the European Central Bank (ECB) will issue its own digital currency. Novogratz does not believe that Bitcoin would be threatened by the digital euro. He instead says that the ECB issuing its own digital currency could help drive the adoption of Bitcoin and other cryptocurrencies.

Why CBDCs Are Good for Bitcoin

In her speech on September 21, Christine Lagarde talked about the topic of issuing a Central Bank Digital Currency (CBDC). The European Central Bank is currently examining the idea of issuing a digital currency. The central bank is also carefully assessing key challenges associated with the digital currency.

Lagarde said:

“We are also exploring the benefits, risks, and operational challenges of introducing a digital euro. A digital euro could be a complement to, not a substitute for, cash; it could provide an alternative to private digital currencies and ensure that sovereign money remains at the core of European payment systems.”

She described the digital euro as just a complement to cash, but not its ultimate replacement. The digital euro would ensure that a widely used cryptocurrency like Bitcoin does not replace sovereign money.

However, the exact launch of the digital currency is still unknown as there is very little available information about the design of the CBDC.

Novogratz is a well-respected and successful macro hedge fund manager who understands both worlds of traditional finance and cryptocurrencies. So, he understands how the CBDC would impact Bitcoin.

Novogratz believes that the European Central Bank launching its own central-bank-issued digital currency will help the adoption of Bitcoin and other cryptocurrencies as well. Central banks love to print money. He says that if the same central banks keep printing their fiat currencies like it is a toilet paper, then Central Bank Digital Currencies will deprecate, but Bitcoin won’t.

Novogratz believes that the ECB will go back to its old ways with the digital euro by printing an unlimited amount of money.

Novogratz said that central banks that develop their fiat currency-pegged digital currencies might be providing more power to Bitcoin by paving the way for institutional interest. He said that Bitcoin and other cryptocurrencies could eventually benefit from the same infrastructure, which is used by the widespread adoption of CBDC. In other words, central banks would build infrastructure used to safely transact and store CBDCs. But that same infrastructure could be used for cryptocurrencies such as Bitcoin.

Bitcoin as A Hedge Against Inflation

Around the globe, central banks are flirting with digital currency. Central Bank Digital Currencies are going to be a trending topic as plans for CBDCs are underway in more than 45 countries, including China, Uruguay, Turkey, France, and Sweden. But are CBDCs a threat to or good for Bitcoin? Various experts have indicated that CBDCs would pave the way for continued institutional and retail interest in Bitcoin and other cryptocurrencies.

If billions of people will have digital wallets and have a new familiarity and understanding with digital money, then accessing a global, non-sovereign currency like Bitcoin becomes much faster and shorter. If financial institutions have to develop infrastructure and tools to safely transact and store CBDC, that same infrastructure could potentially be used for Bitcoin.

CBDC is still a government-controlled fiat currency, which is the same fiat currency being used today. It is still prone to inflation and selective money printing. To hedge against the decreasing purchasing power of fiat and monetary inflation, people would still consider buying Bitcoin just like what billionaire Paul Tudor Jones has done.

European Central Bank Assesses Potential Digital Euro CBDC Issuance

The European Central Bank (ECB) has been looking into central bank digital currency issuance for quite some time and evaluating whether a digital euro would be a beneficial addition to its financial system.

Reasons for a CBDC issuance

A report assessing the implementations behind a potential central bank digital currency (CBDC) issuance was recently released by the European Central Bank. The report detailed that for a digital euro to thrive, it must comply with the existent financial regulations of the Eurosystem and provide more financial accessibility and efficiency in an increasingly digital age.

The report read:

“A digital euro could support the Eurosystem’s objectives by providing citizens with access to a safe form of money in the fast-changing digital world. This would support Europe’s drive towards continued innovation. It would also contribute to its strategic autonomy by providing an alternative to foreign payment providers for fast and efficient payments in Europe and beyond.”

A potential digital currency issuance could enhance the digitalization of the European economy and be introduced in response to a decline of cash payments, according to the report.

In addition, as the pandemic has changed consumer behavior globally, increased adoption of digital payments caused by social distancing should also be taken into consideration. Therefore, a digital currency for contactless payments could be attractive to consumers. The report read:

“Consumers may even perceive cash to be a vector of infection […] They might therefore become less willing to use cash and more inclined to use contactless and online payments.”

The report depicted that there were still many questions to be answered before a research and development phase could be implemented by the European Central Bank.

Requirements for future CBDC

Before a CBDC could be launched, several key requirements were detailed by the ECB. Based on the report, the digital euro must be in stride with current technology, “be available through the entire euro area and be interoperable with private payment solutions.” The digital currency must possess cash-like features and “provide functionalities that are at least as attractive as those of payment solutions in foreign currencies;” It must also be a tool for improving monetary policy transmission.

A digital euro must “improve the overall resilience of the payment system” and be accessible outside of the Eurozone, all the while remaining consistent with Eurosystem standards. A potential digital currency should provide offline payment alternatives, as well as be free of charge, secure and have a strong European branding; it must also comply with the Eurosystem landscape and provide more financial accessibility.

If a digital euro was to be launched, it must be available outside the Eurozone as well, be secure, cost-efficient, and run on environment-friendly technology aimed at minimizing one’s ecological footprint.

Next experimentation phase to start in 2021?

The report released by the European Central Bank provided a comprehensive assessment of what the Eurosystem landscape should expect if a CBDC was to be issued. However, before moving forward with the experimentation phase, the ECB also expressed the importance of taking into consideration stakeholders and citizens’ stances as well on introducing a hypothetical digital currency within society.

If the project is cleared by European financial authorities, the research and development phase of the digital euro may start sometime in mid-2021, led by the High-Level Task Force on CBDC. As per the report, “Towards mid-2021 the Eurosystem will decide whether to launch a digital euro project, which would start with an investigation phase.”

Digital currency to complement fiat

On several occasions, European Central Bank President Christine Lagarde stressed the importance of keeping in stride with the booming digital age. However, she rectified that though Europe may potentially benefit from a digital euro if the central bank decides to go forward with the project, it will most likely complement fiat currency, “it would not replace it.”

European Central Bank is Consulting the Public on CBDC

The European Central Bank is keen on its drive towards a Central Bank Digital Currency (CBDC) and launched a public consultation yesterday, seeking public opinion on the proposed Digital Euro.

According to the European Central Bank (ECB), the proposed digital euro is different from a “crypto-asset” and all implications of issuing the CBDC must be adequately considered. The public consultation officially launched on Oct. 12.

The European Central Bank has undoubtedly been making crucial moves towards the issuance of a Digital Euro in the past days. “A digital euro could support the Eurosystem’s objectives by providing citizens with access to a safe form of money in the fast-changing digital world. This would support Europe’s drive towards continued innovation,” the ECB said in an earlier report in which it assessed the potential of issuing the digital euro, “It would also contribute to its strategic autonomy by providing an alternative to foreign payment providers for fast and efficient payments in Europe and beyond.”

From the foregoing, the ECB’s current plan for the public consultation involves devising ways to ensure that the proposed Digital Euro will be ‘risk-free’ like banknotes and coins. According to the report, the ECB beginning on October 12 will start a three-month public consultation and a series of experiments that will span over six months.

No Timeline Yet Set For The Issuance

Despite the ECB’s growing impetus towards achieving a Digital Euro, the apex bank has not released any timeline to guide the process of the development and subsequent issuance. The resurgence in the ECB’s plan was partly due to the acknowledgment that the coronavirus pandemic has accelerated digital currency adoption.

In a bid to consolidate the traction the ECB is gaining in line with its CBDC project, about six European Nations have formed a working group to further assess central bank digital currencies. In all, the ECB’s overall aim is to launch the digital Euro in time to unleash the global power of the Euro.

Bank of Spain Plans to Look at Design Proposals and Economic Implications of a CBDC

Banco de España, Spain’s central bank, published its strategic plan that outlines its goals over the next four years. According to the plan, besides examining the European Central Bank’s trends and policies within the Spanish economy, Spain’s central bank would study different design proposals and evaluate the economic implications, including the systematic and financial risk of a central bank digital currency (CBDC) in the country.

The Bank of Spain would also conduct research on the impact of negative interest rates on banks, coronavirus-related challenges on markets, and many other areas on CBDC efforts.

The Research Not Much on CBDC Issuance

However, this does not imply that the Bank of Spain has plans to issue its own Central Bank Digital Currency. While the plan does not focus so much on the potential CBDC efforts, it says that CBDC research is a priority under the theme of “New Technologies and Information Sources.” The plan says:

“The implications for the financial system and the economy as a whole of the introduction of a central bank digital currency will be analyzed, considering various design proposals and including aspects relating to digital identification.”

Such “priority” research would start this year and conduct through the end of 2021.

Pablo Hernández de Cos, the current governor of Spain’s Central Bank, stated: “Regardless of its importance, expanding access to a Central Bank’s balance sheet by making a CBDC available to households & non-financial corporations is only one of many ways in which tech innovation may help enhance the monetary & payment system.”

Spain and the Euro

As a member of the eurozone, Spain does not have to issue its own CBDC. The country has been using the euro since 2020. The European Central Bank is currently considering issuing a CBDC through committee work, which includes Spanish central bankers.

Juan Ayuso Huertas, Director General of Spain’s Central Bank, is adequately active in the research of a digital euro. He is a member of the High-Level Task Force on Central Bank Digital Currency that facilitated the production of the digital euro report.

Under the leadership of the current European Central Bank (ECB) president, Christine Lagarde, the ECB has been actively researching on a CBDC. The ECB recently published a detailed report regarding the potential impact of a digital euro and has unveiled consultations with the public regarding the implications of a digital euro. The future of the work concerning the issuance of a digital euro would be determined in mid-2021.