The Covid-19 pandemic is pushing the global economy toward a major recession, but there may be a silver lining in all this for the crypto industry: The accelerated adoption of central bank digital currencies, according to Cointelegraph.
The use of cash seems to be plunging these days – particularly now, as people are increasingly wary of engaging with potentially germ-infested surfaces. Meanwhile, some central banks are reevaluating their strategies in favor of digital currencies, which they believe may carry more benefits than just stopping the virus from spreading further. So, how likely are we to see a central bank digital currency (CBDC) being released in the near future?
More hygienic than cash
CBDCs are digital assets that are issued, monitored and regulated by a federal regulator. CBDCs represent fiat money in a digital form. Each CBDC unit acts as a secure digital equivalent of a paper bill and can be powered by blockchain or some other form of distributed ledger technology, but it is worth noting that concrete plans for implementation and motivations vary significantly depending on the country.
CBDCs seem to be an increasingly popular concept among central banks. As per a 2019 report issued by the Bank for International Settlements, a Switzerland-based organization representing 62 of the world’s central banks, as many as 70% of financial authorities worldwide were researching the potential effects that CBDCs could have on their economies.
During the pandemic, that percentage could reach even higher, as countries like the United Kingdom – where cash and ATM usage dropped by 50% over just a few days last month – might start looking for alternatives. Even in Germany, where cash is more popular than in neighboring countries, there has been a recent surge in contactless payments. Locals, including senior officials such as Chancellor Angela Merkel, are now using debit cards for their grocery shopping.
This poses the question: Is physical money actually that dangerous? At this point, it’s difficult to say whether banknotes transmit the disease, given that Covid-19 is still largely under-researched. Christine Tait-Burkard, an infection expert for the Roslin Institute at the University of Edinburgh, explained that the risk is relatively low, “Unless someone is using a bank note to sneeze in.”
According to a recent paper by the Bank for International Settlements (BIS) that cites medical reports, there is also risk of transmission through contact with credit card terminals and PIN pads that might be more significant compared to the health risks posed by physical money.
Either way, the coronavirus’s alarming rate of infection has been causing major panic. For example, a man in South Korea reportedly attempted to sanitize 1.8 million won ($1,500) in a microwave, irrevocably damaging around half that sum as a result. Meanwhile, a video of someone washing Indonesian rupiahs in a bucket has been making rounds on Twitter, and in India, someone apparently developed a machine to sanitize banknotes. A World Health Organization spokesperson has had to squash reports that it recommended not using “dirty banknotes.”
However, it isn’t just the public that has begun to steer away from cash. In February, the People’s Bank of China ordered all local banks to disinfect cash with ultraviolet light and high temperatures and then hold it for seven to 14 days. Similar measures were reportedly introduced in Russia as customers and businesses were urged to use digital payments instead of cash and asked banks to limit the amount of physical rubles in circulation. Identical methods have also been implemented in India, Indonesia and Georgia, among other countries.
The risk of cash spreading Covid-19 is already motivating authorities to consider digital alternatives. “A once-in-a-century pathogen demands once-in-a-century solutions,” argued Deutsche Bank macro strategist Marion Laboure. “An obvious place to start is to accelerate the inevitable shift toward [digital cash].”
BIS researchers seem to agree with the sentiment. “Irrespective of whether concerns are justified or not, perceptions that cash could spread pathogens may change payment behavior by users and firms,” it claimed in a recent report, which also stated: “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.”
According to John Paul Schnapper-Casteras, founder of Schnapper-Casteras PLLC – a law firm that has been researching CBDCs among other digital phenomena – digital currencies entail more benefits for a virus-stricken economy. Payment speed and facilitated distribution could also be seen as important perks, Schnapper-Casteras explained in a comment for Cointelegraph: “Two core features make CBDCs efficient and comparatively attractive as a policy tool: payment speed and helicopter money. Those would be especially useful in the current crisis, since a government could rapidly send direct payments to citizens (compared to the long delays in check issuance, tax refunds, etc.) and could also provide geographically and temporally targeted relief/stimulus.”
While the global interest in CBDCs has clearly peaked over the past few months, it is unlikely that any digital currencies will be released before the pandemic ends. In January 2020, before the WHO recognized the outbreak as a pandemic, the BIS released a survey conducted among 66 central banks that cover 75% of the world’s population and 90% of economic output. As per the results, only 10% of central banks said they are likely to issue a general purpose CBDC in the short term, while 20% are allegedly ready to roll out digital currencies in the medium term.
Two notable advocates for a digital dollar, J Christopher Giancarlo and Daniel Gorfine, who worked together in the past at the Commodities and Futures Trading Commission, recently stressed in an interview with Cointelegraph that CBDCs are a delicate matter that can’t be rushed. Specifically, Giancarlo mentioned that while the digital dollar would be useful in a crisis, its development requires more time than the current emergency aid demands, adding, “One needs to be very cautious about trying to launch something as big as this amidst a crisis.”