COVID-19 Pandemic May Draw More Acute Attention To CBDC Development

The coronavirus crisis was a wake-up call in terms of health and hygiene, as people started washing hands every twenty minutes or use hand sanitizers. Another issue which gained popularity lately is the fact that the virus could be contracted via cash. In fact, even the World Health Organization (WHO) has advised public to use as many digital payment methods as possible in the wake of the COVID-19 pandemic, which may be a foundation for serious central bank digital currency (CBDC) development.

The chart above shows a Google Trends data for five search queries — “Cash Covid,” “Coin Covid,” “Cash virus,” “Coin virus,” and “Cash corona,” over the last 30 days. This is a representation of the panic caused by the pandemic worldwide.

Soon, many crypto enthusiasts used this opportunity to advertise Bitcoin. However, soon, questions about the need of crypto started to arise, as there are digital government-backed currency payment systems already in place.

Responding to this argument, a recent BIS report has stated that not all digital payments are immune to this deadly virus. It maintained that the COVID-19 pandemic may call for a more attentive consideration of CBDC development. According to the report:

“Debit and credit card transactions generally require a signature or a PIN entry at a merchant owned device for larger transactions. Contactless card payments, which are popular in several countries do not require a PIN for small transactions but have set higher transaction limits for contactless payments.”

Another important thing to consider is that such sudden switch from cash to the digital payments will severely impact unbanked and older people. This could be an important discussion going forward, possibly stressing on the strengthening of cash’s role in the economy.

As these loopholes in the traditional system abound, the report suggested that the implementation of a CBDC could be a possible solution. It also stated that CBDCs should be created in such a way that it can withhold a huge range of threats, such as pandemics and cyber-attacks, along with allowing access options for the unbanked and (contact-free) technical interfaces suitable for the whole population.

The CBDC pyramid presented above shows consumer needs and the respective design choices for central banks. While “cash-like with peer-to-peer functionality” and “convenient real-time payments” are the basic needs of a CBDC, the operational role of the central banks comes into question. Similarly, if all the user needs listed above are satisfied by the banks while developing the CBDC, the project might turn out to be a success. The bottom stays simple. To succeed, a CBDC must be secure and accessible, provide cash-like convenience, and protect privacy.