Worldwide lockdowns and social distancing measures have only increased the use of cards over cash. To respond, companies and policymakers must design alternatives to credit cards and remove middleman fees. For now, the priority must be on regional digital payment systems.
The report acknowledged that central banks have been working for some time on ways to “digitize cash,” and that the pandemic had only accelerated the process. In fact, a January 2020 survey by the Bank of International Settlements found that 80% of central banks were developing a CBDC, and 10 percent, from emerging markets, displayed stronger motivations – such as launching pilot tests – that increased the likelihood of issuing digital currencies.
According to the Bank’s research, the CBDC race was led by Sweden and China with both nations having started CBDC pilot projects earlier this year. It found that these nations have for many years embraced digital payments, and that cash payments were declining well before covid hit.
Stating that governments played a “pivotal role” in supporting a digital payments infrastructure, and noting China and Sweden’s active progress in the field. The bank called on US and Europe to “catch up” with the CBDC trend. It even warned European policymakers about the risks of not developing their own CBDC:
It is imperative that the US and Europe catch up. However, development in both is too slow. If other countries do not catch up, they may find that their companies are forced to adopt the digital currencies and policies of other countries as payment mediums.
Meanwhile, in the US, the Federal Reserve is still exploring the potential impact of a digital dollar on commercial banking and its monetary policy. Moreover, the race to be the first to issue a CBDC does not seem to worry the US either. In fact, the country’s Federal Reserve’s chairman, Jerome Powell had emphasized that the US would rather “get it right” than to be the first, in terms of issuing its CBDC. Powell believed that resolving risks to privacy and security was much more important in that aspect.
In Europe, the ECB does not plan to decide whether and how to launch a digital euro until at least mid-2021, the research stated.