17 Jul 2017

Dutch support for a virtual euro

Public debate on monetary reform is on in the Netherlands. Increasingly, the focus is on the virtual euro. Last month Dutch NGO for monetary reform, Ons Geld, held a conference in Amsterdam. Over 600 attendees, among which Dutch and European politicians, probed the status of the reform movement.

In 2015 Ons Geld got support of over 100.000 citizens, demanding ‘debt free’ sovereign money creation. As a result, money creation is repeatedly discussed in the Dutch parliament, which commissioned the Scientific Council for Government Policy, to study the subject. Its report is expected later this year.

Digital cash

In the parliamentary process, Ons Geld asserted the importance of ‘digital cash’, the digital counterpart of notes and coins. At its Amsterdam conference Ons Geld applied this to the Eurozone, proposing a virtual euro, not to replace physical cash, but to replace bank money and to pay off ‘systemic debt’. Systemic debt relates to the current money supply, that society borrows from the commercial banks on net interest. If Ons Geld gets is way, all bank money is given back to the banks as society no longer needs it, after switching to a virtual euro. This reduces current debt levels in society, not by write-off, but by repayment. Both Northern and Southern Member States would profit from it, reducing debt related tensions in the Eurozone.

Design of a digital money system

Ons Geld wrote an introduction to the virtual euro, raising fundamental questions on design and governance of our present and future money system. A virtual euro system must be designed from scratch. That encourages society to think about its requirements. Our future money system is not an established fact, handed over by tradition. It is an opportunity to look beyond the symptoms and shortcomings of the bank money system, and figure out how we want our money system to be. As Ons Geld presents it, the virtual euro system will be much safer and simpler than the current money system.

The nature of money

This is due to the nature of virtual euro, which unlike bank money, is not a claim on a bank. Payment with virtual euro does not involve any balance sheet other than those of payer and payee. All main concerns of a bank money system, notably bank liquidity, interbank settlement and bank solvency are irrelevant to a virtual euro system. Like physical cash, virtual euro is subject to ownership. Its safety does not depend on the condition of a bank or the banking system. In a virtual euro system, banks have no special status and can be subjected to regular insolvency procedures and regular financial oversight. A level playing field for banks and non-banks would emerge, improving competition in the financial sector.

Safe and simple

With the virtual euro in place, account holders can withdraw their money from the banks, and hold it as virtual euro instead. The European Union will guarantee the value and stability of the virtual euro. It will no longer support the value of money claims on banks. As a result, remaining bank deposits will no longer be traded at par on a nominal footing. They will be treated as bonds: regular borrowed capital, under regular financial oversight, with day to day changing value. This would end the close relationship between the government and the banking system. A line is drawn between the public responsibility for the euro, and the private business of money lending.

The virtual euro could be a game changer in the Eurozone. Making the money system much safer and simpler, helping the Eurozone overcome its current debt deadlock and regain an appetite for European integration.

An introduction on the virtual euro is available at: https://onsgeld.nu/onsgeld/2017/the_virtual_euro.pdf

A basic framework for implementation of the virtual euro is available at: https://onsgeld.nu/onsgeld/2017/deleverage_without_crunch.pdf