The Corona Virus pandemic has caused a new urgency to central banks’ pursuit to create their own digital currencies, which expert argue could help governments distribute stimulus aid directly to businesses and people in a future crisis.
Central bank digital currencies (CBDCs) could also solve the hygiene concerns by eliminating the use of contaminated physical cash. And though they may not be ready in time to support the financial system during the current Pandemic, the issuance of CBDCs could imply central banks and governments are better equipped for the next crisis, according to financial experts.
The COVID19 catalyst
Central bank digital currencies are a digital equivalent of cash and form part of the general money supply. They differ significantly from digital payments, which are simply “representations” of money, and from cryptocurrencies, which are privately issued forms of storing value.
The acceleration for the adoption of CBDCs had already been witnessed in Europe even before the COVID19 Pandemic. Sveriges Riksbank, a Swedish central bank, had been working on the e-Krona for some time and the project is now at the road-testing stage.
News about CBDC consultations and pilot studies have hit the headlines in the past three months. The bank of England outlined a paper and a call for suggestions on CBDCs in March, stating that they could support the bank in areas such as solving the impacts of a decline in cash usage to alleviating the risks brought by the introduction of cryptocurrencies.
Banque de France called for trials for the use of CBDCs at the end of March, while Nederlandsche Bank NV expressed its interest in issuing its digital currency in April.
“We believe that the current pandemic can significantly speed up existing plans by central banks to implement CBDCs,” Adam Bujnowski, head of consulting at Zeb Consulting, a Poland-based company that advises on financial services, said.
He further stated that the COVID19 Pandemic had accelerated a shift towards digital payments because of fears among the general public about contacting the virus through contaminated banknotes and coins. The more the masses become accustomed to digital payments, the more we can expect a “declined role” for cash transactions, even in the post-lockdown period.
What do findings from surveys suggest?
If you are still in denial of digital currencies, you are among the minority group. 85% of survey participants of global consumers have owned, used, or heard of decentralized digital currencies, like crypto. This is according to an Economist Intelligence Unit Survey done early this year. The survey, Digimentally-Fear and favoring of digital currency, facilitated by Crypto.com, also showed that in the developing countries, digital currency awareness hit 92%.
The study highlighted a trend that is likely to speed up as Corona Virus concerns increase, and governments take physical cash out of circulation to help curb the virus spread. The global study revealed that people all over the world were already leaning towards cashless methods for their daily spending, based on convenience and traceability factors.
“Covid-19 wasn’t part of the original survey parameters since it didn’t exist at the survey’s onset,” explains Jason Wincuinas, senior editor for thought leadership with the Economist Intelligence Unit, who headed the research. “But we can see in events since the survey finished in February — such as the debate in the US congress over introducing a ‘digital dollar’ in recent weeks — that this is becoming a structural concern for society. What’s interesting is how China and Sweden were already looking at digital currency as potential pillars of their monetary systems. For other countries, maybe it takes an emergency like COVID19 to move the needle.”
In the study, physical credit cards were established to be the most common option overall, while cash was the third most option used. Online banking, online payment services, and mobile apps also had a big junk of consumer transactions. Digital currencies, which comprise of cryptocurrencies like Bitcoin, Binance Coin, Ether, Ripple, etc., were the last exploited option. Still, they showed the most significant share of participants who said they planned to try them within the next year.
The inclination towards a cashless society is an irresistible force. It is fascinating to see extraordinary eagerness and expectations in the developing countries surveyed. Considering that such countries also tend to have higher rates of people using smartphones and youthful populations- who have a quicker grasp of technology- it could be an indication of what is yet to happen with digital currencies.
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