Global COVID-19 Crisis Promotes Digital Currency Projects

Posted on Jan 27, 2021 at 9:00 p.m.

The COVID-19 crisis prompted 30% of central banks to accelerate their digital currency projects according to the third poll conducted by the Bank for International Settlements among 65 countries in the fourth quarter of 2020. The health crisis has heightened interest to have a 100% electronic currency that meets social distancing requirements and responds to fears of contamination in the event of the use of banknotes and coins. A central bank digital currency would also facilitate and accelerate the payment of aid during periods of economic crisis. The individual’s account would be credited directly by the central bank. More broadly, this movement is part of a context of decline in “cash” as a means of payment but not as easily available precautionary savings. And 60% of countries believe that the health crisis has not changed the pace of their work on the subject.

Nearly nine out of ten central banks reflect on the pros and cons of issuing their digital currency, whether it is intended only for financial institutions or for citizens and businesses. But they are still far from being ready to take the plunge. Only 14% are at the pilot and test stage. Emerging countries are more motivated than developed countries to launch an electronic version of their currency.

China wants to hit hard

Six central banks plan to launch their digital currency for the general public within the next three years. China wants to strike hard before all the other great powers (United States, Europe). There are around ten monetary institutions to consider this great digital leap before 2027. The Bahamas have led the way by launching their 100% digital “Sand dollar”. It aims in particular to promote financial inclusion in an archipelago where its 390,000 inhabitants are scattered over more than thirty islands.

The majority of central banks are working on launching both a digital version of their currency for the general public and one reserved for financial institutions. A quarter of central banks will obtain authorization from their legislators to issue a digital currency while one in two is still in the dark about their legal framework.

Bitcoin not competitor

At present, 60% of central banks consider that cryptocurrencies like bitcoin are used very little as a means of payment in their country. 20% believe that cryptos are aimed at a restricted clientele of users and an equivalent proportion even ignore the weight of 2.0 currencies in payments.

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