As the COVID-19 pandemic is driving millions around the world to adopt cashless payments and eliminate the use of banknotes, central banks are accelerating their pilot programs intended to develop central bank digital currencies (CBDC).
Long before the outbreak and the rise of cash-contamination fears, central banks have started to embrace technologies underlying digital, cashless, and contactless payment solutions, particularly Blockchain.
The pivot towards central bank-backed digital payment solutions was prompted by the rise of cryptocurrencies in the last few years, and more recently Facebook's Libra cryptocurrency stable coin.
Both have received dismissal and scrutiny from traditional financers over fears of destabilizing the global payment system.
Now, CBDCs are becoming real with countries such as China and Sweden testing central bank-issued currency. Countries like the US, France, England, Japan, and Italy are currently exploring the issuance of digital version of their currencies for retail use.
“There is little evidence that cash transmits the virus but COVID-19 has caused an unprecedented experiment in digitalization across our lives,” Benoit Coeure, head of the Innovation Hub at the Bank for International Settlements, said.
“COVID-19 will be remembered by economic historians as the event which pushed CBDC development into top gear,” he told an online event held by think tank CEPR and the London School of Economics.
Cœuré said the potential introduction of a CBDC “has to be a political discussion” as “money is at the heart of sovereignty”. Central banks will introduce CBDCs but in a cautious way to avoid fragmenting the financial and monetary system, he added.
Coeure co-chairs a group of central banks working on the “building blocks” of a CBDC and will report back in October, according to Reuters.
Christina Segal-Knowles, executive director for financial markets infrastructure at the Bank of England, said the pandemic has accentuated an existing trend of shrinking use of cash.
“We are actively exploring it given the potential opportunities,” Segal-Knowles told the event, adding it was still unclear what impact a CBDC would have on the financial system and implementation of monetary policy.