Bank for International Settlements: COVID-19 crisis will drive development of global central bank digital currencies

The Bank for International Settlements expects that the impact of the COVID-19 crisis on retail payments will have a positive impact on the development of central bank digital currencies.

In a report released on Wednesday, the Bank for International Settlements noted that cash payments have fallen sharply due to concerns among merchants and consumers about the spread of the virus. Economic uncertainty has also triggered "precautionary holdings" of cash, leading to a decrease in daily cash transactions.

At the same time, restrictions imposed by national governments, such as the closure of physical stores, have also led to a surge in e-commerce payments. Reduced population mobility has triggered a drop in cross-border credit card transactions and a sharp drop in remittances from migrants.

The Bank for International Settlements believes that all these changes reveal the strengths and weaknesses of the existing payment system. On the one hand, digital payments have enabled many economic activities to continue despite major disruptions to daily life.

On the other hand, inequalities between social groups have become more severe during the crisis, partly due to uneven financial inclusion, which may adversely affect individuals' access to government relief.

“The crisis calls for systems that can increase access to digital payments for vulnerable groups and for lower-cost payments services to be more financially inclusive in the future,” the report said.

In this context, the report states that the issuance of central bank digital currencies is “at the forefront of policy opportunities” for central banks and “could constitute a sea change.”

The report argues that “the issuance of central bank digital currencies is not a response to cryptocurrencies and private company ‘stablecoins’, but rather a concentrated technological effort by central banks to achieve several public policy goals at once.”

The BIS believes that a successful central bank digital currency could provide "a new, secure, trusted and widely available digital payment method." The report also analyzes the potential benefits and risks of central bank digital currencies for banks and institutions and those for consumers.

At the end of the report, the Bank for International Settlements stated that it will continue to closely support global central banks in their research and design work on central bank digital currencies. The agency called for greater international coordination to ensure that the future of global payments after the crisis will be more decentralized, more inclusive and more efficient than in the past.

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AuthorLiang Che

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