04-06-2020 icon

BIS Intensifies Call for Central Bank Digital Currencies Amid Coronavirus Threat

By Sagetwriter
Bank for International Settlements Research on Central Bank Digital Currencies

The Bank of International Settlements (BIS) has released a report in favour of central bank digital currencies (CBDCs) amid the coronavirus pandemic.

The report published by researchers at the BIS, notes that COVID-19 is changing public’s perception of cash; and that central banks should consider the development of CBDCs and digital payments as concerns about the spread of the virus through existing payment methods heighten.

A snippet of the research reads:

“Irrespective of whether concerns are justified or not, perceptions that cash could spread pathogens may change payment behaviour by users and firms…The pandemic may hence put calls for CBDCs into sharper focus, highlighting the value of having access to diverse means of payments, and the need for any means of payments to be resilient against a broad range of threats.” the researchers said. 

According to the report, there has been significant downside in consumer usage of cash, following a warning by the World Health Organization (WHO) of spreading the virus through banknotes.

While the BIS research corroborates these concerns, it also hints at the greater possibility of contracting coronavirus via credit card terminals, ATM and PIN pads.

“Scientific evidence suggests that the probability of transmission via banknotes is low when compared with other frequently-touched objects, such as credit card terminals or PIN pads.”

Demand for Fiat Currency/Cash Drops

The report states that past financial crises had usually seen “an increase in demand for cash, as consumers sought a stable store of value and medium of exchange.”

However, this time the BIS says there is a sizable decline in utility across cash channels including ATM withdrawals as it made reference to current statistics in the United Kingdom.

BIS predicts that the COVID-19 outbreak could “lead to both higher precautionary holdings of cash by consumers and a structural increase in the use of mobile, card and online payments.”   

A Case for CBDCs

It will be recalled that during the peak times of the virus in China, the country’s banks resorted to disinfect cash and reprint new notes to keep both economy afloat and its people safe from contamination.

There has also been increased calls for a US digital dollar due to the coronavirus.

In all, the BIS research gives credibility to the narrative that the current economic situation could lead to adoption of central bank digital currencies (CBDCs) which will be designed to resist a variety of issues including pandemics and cyber attacks.

While this is a welcome development, the BIS warns that a move away from cash usage could further extend the gap between the banked and unbanked, that is, those with access to digital payments and those without.