According to reports by the Bank for International Settlements (BIS), COVID-19 has been highlighting the need for a Central Bank cryptocurrency (CBDC).
In its latest report, the Bank of International Settlements (BIS) reinforced its narrative that the COVID-19 pandemic exemplified the need for central banks to accelerate the development of central bank digital currencies (CBDCs).
The BIS described the ongoing payment digitization phase and predicted that whoever launches that currency first will prevail.
BIS: digitizing payments is fast
THE report shows that the financial sector is currently in a significant transition phase, in which central banks and fintech companies are developing and implementing new payment options to facilitate the user experience and reduce transaction costs. Such examples from banks are CBDCs.
“An option on the frontier of policy opportunities is the issuance of CBDCs, which can mean a radical change. CBDCs could offer a new, secure, reliable and widely accessible digital payment method.
But the impact can go much further, as they can promote competition among private sector intermediaries, establish high security standards and act as a catalyst for continued innovation in payments, finance and trade in general. ”- says the report.
The document also distinguished CBDCs from other cryptocurrencies and stablecoins. He noted that central bank-backed virtual currencies do not come as a “reaction” to cryptocurrencies. Instead, they are a “concentrated technological effort by central banks to pursue several public policy objectives at the same time”.
COVID-19 accelerating the adoption process
When the coronavirus pandemic infiltrated the western world, the BIS in another report asked central banks to turn to CBDCs. Now the latest article shows how much the world of digital finance has changed since the virus.
“The COVID-19 pandemic highlighted the progress made and the remaining deficiencies in payment methods. The ability to use contactless payments in physical stores and online shopping supported economic activity. However, digital payments are not yet sufficiently convenient or accessible to everyone. “
As governments imposed quarantines across the country, which included the closure of some physical stores, the number of online payments has increased dramatically. In addition, the economic uncertainty caused by COVID-19 also urged people to retain, rather than spend their money, which caused a decrease in daily cash transactions.
CBDCs, according to the BIS, are the most obvious solution, since they will be made by central banks, they should have lower costs and faster transaction. Consequently, it is not surprising that some countries like China are well ahead in their development stages.
Reports often show that the most populous nation in the world is testing its own CBDC in a designated application and in certain regions. Another reported that China plans to use its next state-backed digital currency for the post-COVID-19 stimulus.