Back in the days every national central bank had their own coin. Should we go back to this principle, but this time with a digital coin? The idea behind it is as follows, in times of a crisis people can move their money from the commercial banks to the central bank for more certainty. A measure that could create more instability, instead of reducing it.
Proponents cite that such a move would create discipline in the market. If savers are able to move their money away easily, banks are forced to handle savings more carefully. According to Bas Jacobs, Sijbren Cnossen Professor of Public Economics at Erasmus School of Economics, creating a liquidity crisis is the worst way possible to impart discipline. More convenient are capital requirements for example.
Substituting cash for digital money has some other benefits. Besides the reduction of crime, central banks would have new ammunition to protect and stabilize the business cycle. If there is no more cash, central banks are enabled to lower the interest rate below zero. An interesting macroeconomic thought, thus Jacobs.
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Listen to the entire item on BNR Nieuwsradio, 14 October 2019 (in Dutch).
