In its latest report, the Bank of International Settlements doubled-down on its narrative that the COVID-19 pandemic has exemplified the need for central banks to accelerate the development of central bank digital currencies (CBDCs).
BIS outlined the ongoing payment digitalization phase and predicted that whoever launches such currency first will ultimately prevail.
BIS: Payment Digitalization Comes Fast
The report noted that the financial sector is currently in a significant transitioning stage in which central banks and fintech companies are developing and implementing new payment options to facilitate user experience and to lower the transaction costs. Such examples coming from banks are the CBDCs.
“One option at the frontier of policy opportunities is the issuance of CBDCs, which could amount to a sea change. CBDCs could offer a new, safe, trusted, and widely accessible digital means of payment.
But the impact could go much further, as they could foster competition among private sector intermediaries, set high standards for safety, and act as a catalyst for continued innovation in payments, finance, and commerce at large.” – reads the report.
The paper also distinguished CBDCs with cryptocurrencies and stablecoins. It noted that the central bank-backed virtual currencies do not come as “a reaction” to cryptocurrencies. Instead, they are a “focused technological effort by central banks to pursue several public policy objectives at once.”
COVID-19 Plays A Significant Role
When the coronavirus pandemic infiltrated most of the Western world, BIS urged central banks in another comprehensive report to accelerate their efforts for CBDCs. Fast-forward a few months, and the latest paper outlined how much the world of finance and payment options has altered following the virus.
“The COVID-19 pandemic has highlighted both the progress achieved and the remaining shortcomings in payments. The ability to use contactless payments in physical stores and for online purchases has supported economic activity. Yet, digital payments are still not sufficiently convenient or accessible to all.”
As governments imposed nation-wide lockdowns, which included the closure of some physical stores, the number of online payments has increased dramatically. Additionally, the economic uncertainty prompted by the COVID-19 also urged people to hold, instead of spending their cash, which caused a decrease in daily cash transactions.
CBDCs, BIS argues, are the rather obvious solution, since they are backed by central banks, should be lower in costs, and fast in transmitting. Consequently, it’s not surprising that some countries such as China are well-ahead in their development stages.
Reports frequently surface that the most populated nation is testing its own CBDC on a designated application and in certain regions. Another one informed that China is planning to use its upcoming state-backed digital currency for post-COVID-19 stimulus.