Bank of International Settlements: Central banks should consider developing CBDCs because of the spread of Coronavirus

The Bank of International Settlements (BIS) is a 600-member international financial institution representing the central banks of 60 countries. And now, the organization is calling central banks to consider developing CBDCs in light of concerns regarding the spread of Coronavirus through existing payment methods.

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BIS warns against the transmission of COVID-19 via credit card terminals, so CBDCs is important

BIS has issued a report arguing in favor of central bank digital currencies (CBDCs) and digital payments amid the COVID-19 pandemic. In particular, the report highlights a significant adverse change in consumer attitudes regarding the use of cash in response to the World Health Organization (WHO) warning about the spread. COVID-19 via banknotes.

While BIS echoes the WHO concern, the report confirms that the risk of Coronavirus transmission through contact with credit card terminals and PINs is even more significant:

“Scientific evidence suggests that the probability of transmission via banknotes is low when compared with other frequently-touched objects, such as credit card terminals or PIN pads.”

Phasing out cash

CBDC could bridge society’s need for digital payments with its responsibility to those who cannot easily access them. There are a few caveats: Central banks would have to tailor their CBDCs to “the context of the current crisis,” by making payment contactless and accessibility universal, the researchers wrote.

They said:

“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.”

The report notes that, in previous crises, the demand for cash often increased as consumers searched for a stable store of value and medium exchange.

They found that different countries manifest their fear in often contradictory ways. Cash circulation surged in the U.S. while in the U.K ATM withdrawal volume plummeted; some central banks sterilized reams of banknotes while others asked retailers to stop refusing cash, or called on the public to place science over fear. In the medium term, the report predicts that the outbreak could lead to both consumers holding higher cash and an increase in the structure of mobile phone usage, cards, and online payments.

BIS predicts the following:

“The outbreak could lead to both higher precautionary holdings of cash by consumers and a structural increase in the use of mobile, card, and online payments.”

However, the report highlights the need for CBDCs to be designed to withstand a wide variety of shocks – including pandemics and cyber attacks.

Despite supporting a central bank’s digital currency, BIS warns that staying away from cash as a generally accepted means of payment could open a payment divide between those with access to digital payment and those without — likely having a severe impact on unbanked and older consumers.

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