Kaag: Netherlands open to token-based digital euro – IT Pro – News

The Netherlands will only vote in favor of introducing a digital euro if it not only satisfies privacy requirements, but also brings ‘clear benefits’. The Netherlands is also open to a token-based digital currency, writes Minister Kaag.

Finance Minister Sigrid Kaag will discuss the digital euro next week at a meeting of the Eurogroup and the Ecofin Council. In the his agenda Kaag noted his views on the digital euro, a research project of the European Commission and the European Central Bank. Kaag writes that the EC wants to present a draft law to member states on the digital euro in the second quarter of 2023. This is the first time such a precise date has been mentioned. The law immediately determines whether digital currency will be introduced and what it will look like.

Kaag writes that the Netherlands will vote in favor of the introduction only under a few conditions. First, there must be “clear benefits for consumers, businesses and the wider economy”. Furthermore, Kaag believes that “privacy must be guaranteed”. The minister has previously requested, but it is never further specified what this abstract requirement should mean in practice. For example, Kaag also wants to make it a condition that the digital euro “meets the anti-money laundering framework”, but that it requires a violation of privacy by definition. The trade-off between these two interests remains an important unknown factor in the development of the currency. Finally, Kaag also wants the digital euro to have “guarantees of financial stability” and to be “programmable”.

Even on the latter, the minister is not clear. A surprising new development is that Kaag now says the Netherlands is open to a token-based currency. Previously, the prevailing view on the digital euro was that it would be an account-based currency, comparable to a commercial bank account with money transfer. The Council of the European Union and the European Parliament must vote on the form of the euro.

What is the digital euro?

The digital euro does not exist yet. The project is still in the research phase of the European Central Bank. Several countries are already experimenting with central bank digital currencies. These are digital currencies issued directly by a central bank, similar to cash. Such cash is the opposite of book money, offered by commercial banks; the latter is a debt that a bank owes to a current account holder.

With a digital currency, a central bank has direct influence on interest ratesCentral bank currencies have the advantage that a central bank can directly influence the exchange rate by raising or lowering interest rates. Central banks also want such digital currencies to maintain control over the financial sector, where fintech startups and big tech companies increasingly navigate with less and less financial oversight. There is also much criticism of central bank money, because it is unclear how much privacy citizens have with it and how much influence governments can exert over money supply and issuance patterns.

Tweakers wrote last year a leading article on the digital euro describing what such a currency looks like practically and economically, why central authorities want it, and what other countries are working on it.

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