The outbreak of coronavirus pandemic has brought the whole world to a standstill and it has added to the misery of the financial institutions as well as governments to manage their deficits in these troubled times. While governments are on a money printing spree to get through. The ongoing crisis has also led to a rise in global discussion around Central Bank Issued CBDC's and brought a sharper focus towards the concept.
During a webinar hosted by Accenture last week at the Reinventing Bretton Woods Committee – Chamber of Digital Commerce, the head of the Bank for International Settlements Innovation Hub, Benoît Cœuré primarily talked on two key areas resilience and technology. Cœuré believed these two key areas would be of great importance in the post-COVID-19 era for central banks and payment gateways
He further elaborated that the ongoing pandemic exposes the loopholes in the financial system and brought out the importance of technological advancements with time. He also believed the focus of central banks and governments should be to look for technologies that can work at arm’s length and overcome present issues of social distancing. In short, he believed that in the post-pandemic era there will be drastic changes in human behavior and consumption patterns which would have a lasting impact on how economies functioned in the pre-COVID era. He explained that there would be significant changes to the payment technology and elaborated,
“The payment industry immediately comes to mind. Payments have been at the forefront of technological change recently. A rapid shift towards digital payments can improve cost, transparency and convenience for billions of consumers. International cooperation is needed to support technological capacity in developing economies, ensure interoperability between national systems, enhance cross-border payments and remittances, and support financial inclusion – in short, to avoid spatial and social fragmentation.”
Physical Cash May Start to See a Decline in Demand
The ongoing pandemic is also going to change how people used physical cash. The head of BIS believed that it is an open question whether the present situation would lead to the demise of use of cash. But, it would surely accelerate the adoption of digital payments. He also believed that the global discussion around CBDCs would see a sharper focus and explained,
“The current discussion on central bank digital currency also comes into sharper focus. Whether COVID-19 will accelerate the demise of cash is an open question. But already, it highlights 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.”
There has been a lot of debate about whether central banks should launch their own digital currencies and that debate has been fueled further by China who is already testing their national digital currencies in several cities.
Interestingly, China is among the most advanced nations when it comes to payment modes where almost 90% of the population is using a digital form of payment which are integrated into their daily use applications. This makes it even easier for the country to implement and issue CBDCs since they won’t have to make significant changes to their payment infrastructure. The ongoing crisis has only proved the need for such innovations and a majority of the nations are believed to spring in action once the pandemic situation is under control.