The process of development of crypto currencies by the central banks, known as central bank digital currencies or CBDCs, has been accelerated by the emergence of the novel coronavirus pandemic globally. The pandemic related crisis has not only forced millions to stay at home in order to prevent the spread of the novel coronavirus but has also prompted millions of people to make use of cashless payments during the pandemic. This observation was reported by central bank officials on Thursday.
Ever since the social media company Facebook announced its plans for development and launch of its Libra cryptocurrency stablecoin, central banks have been examining how CBDCs could become a reality in the financial world. The Facebook’s plan raised the possibility of a private sector social media giant ultimately rivaling traditional currencies if it managed to successfully launch eh cryptocurrency.
“There is little evidence that cash transmits the virus but COVID-19 has caused an unprecedented experiment in digitalisation 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.
Coeure co-chairs a group of central banks that are together working on the “building blocks” for a CBDC and will be report back to eh consortium of central banks in October.
He added that while central banks are very interested to develop and introduce CBDCs, they want to do so in a cautious way so that there is no threat of fragmentation of the financial and monetary systems that are prevailing in te current financial world.
“There is no such thing as an off-the-shelf CBDC,” he said.
The already existing trend of shrinking use of cash has simply been accentuated by the novel coronavirus pandemic, said Christina Segal-Knowles, executive director for financial markets infrastructure at the Bank of England.
For example in the United Kingdom, there has been a very significant drop in the amount of cash withdrawn from cash machines in the country since the country was sent into a national lockdown to prevent the spread of the coronavirus pandemic in March, she said. Given the fact that the coronavirus infections spread through touch, therefore shops have also started to insist on contactless payments in some cases, she added.
She said that a discussion paper on a potential CBDC has been published by the BoE. According to the paper, the uses of CBDC could include cutting the cost of cross-border payments like remittances.
“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.
(Adapted from Reuters.com)