The coronavirus pandemic has forced world central banks, already struggling to deal with cryptocurrencies, stablecoins and other non-traditional monies, to up their game on the use of digital currencies and other new technologies.
“COVID-19 has forced an unprecedented experiment in digitalisation, across our lives, including work and in commerce…,” said Benoit Coeure, former ECB executive board member and head of the BIS’s new Innovation Hub, in a panel discussion held via webinar Thursday.
The advent of coronavirus has seen a sharp decline in the use of cash and a big uptick in digital payments in recent months, he said at the event, co-sponsored by Washington think-tank CEPR and the London School of Economics (LSE).
Future economists will view COVID-19, as “an accelerator”, i.e., “the event which pushed CBDC development into top gear”, he said.
Even pre-COVID-19, central banks were already contemplating the use of Central Bank Digital Currencies (CBDC). Coeure pointed to a BIS survey from January, which showed that 80% of the 66 central banks polled in 2019 were engaged in research on CBDC, up from 70% in 2018, with 40% progressing “from conceptual research to experiments, or proofs-of-concept; and another 10% have developed pilot projects”.
Central bankers fear that the switch from cash to digital payments “might leave citizens without direct access to central bank money” and they want to assure that there is “financial inclusion”, Coeure said.
This is not an easy task. There are myriad questions about safety and security with regard to CBDCs and each country will individually have to decide how best to distribute digital currencies to local institutions and which entity will license and monitor these transactions, he said.
“There is no such thing as an ‘Off the Shelf’ CBDC,” he observed.
Coeure, a member of the BIS Executive Committee, is currently the co-chair of a global central bank working group looking at CBDC use cases, with a report on their findings expected to be released in October.
Also Thursday, the House Financial Services Committee Task Force on Financial Technology held a virtual hearing to evaluate how FedAccounts and other digital instruments might be used to distribute stimulus payments to those suffering from the negative economic effects of COVID-19.
In response to a question on citizen privacy, a key concern, “We have a long tradition of privacy rights – it’s enshrined in our constitution in the Fourth amendment,” said J. Christopher Giancarlo, former chair of the CFTC and director of the Digital Dollar Project in his testimony.
“If we do a CBDC right and bring to it those values, I think an American CBDC could be the killer app compared to other sovereign CBDCs where there’s not the same expectation of privacy from government surveillance, such as ones coming out from non-democracies,” he said.
The Digital Dollar Project released a white paper May 29, outlining the need for a “digital dollar” that would support the US dollar as the premier world reserve currency and “provide broader access to central bank money and payments”.