Banking News

Central banker bulletin: COVID-19 cash concerns to drive digital currency

covid 19 cash

bulletin from the Bank for International Settlements (BIS), the body owned by 62 central banks, highlights cash concerns because of the COVID-19 virus. It states that perceived risks, valid or not, brings the potential for digital payments to the fore. And the BIS specifically makes a case for Central Bank Digital Currencies (CBDC).

In recent weeks, internet searches have shot up relating to COVID-19 and cash, especially in jurisdictions that use small denomination banknotes.

Additionally, research has shown that viruses can persist on banknotes. That’s based on past research relating to influenza and other viruses as well as more recent COVID-19 research, which show non-porous surfaces are better at transferring the illness. 

However, there are no proven cases of transmission through cash, and scientists found the risks are thought to be low compared to other frequently touched objects. The main risk for COVID-19 is thought to be airborne droplets. Plus, using cards at point of sale terminals also carries some risks, particularly PIN pads. In both cases, washing hands is important.

Examples given of central bank actions include the Bank of England statement: “the risk posed by handling a polymer note is no greater than touching any other common surfaces such as handrails, doorknobs or credit cards”. China disinfected cash in some regions, and South Africa has seen scams claiming money is being withdrawn from circulation in order to relieve people of their cash.

One of the most interesting observations is that in a financial crisis, one usually sees a flight to cash. While cash in circulation has increased in the U.S., so far ATM withdrawals in the U.K. have fallen. Although restricted movement is likely to play a major role in that.

Digital payments and digital currencies

In recent weeks several jurisdictions have increased the touchless limit for contactless cards.

But the other option is the potential for Central Bank Digital Currencies. The bulletin states: “Resilient and accessible central bank operated payment infrastructures could quickly become more prominent, including retail central bank digital currencies (CBDCs).”

While CBDCs and their need may come into focus as a result of the crisis, there’s a requirement for ongoing access to cash for the unbanked and those who are less technically savvy. Any new CBDC would need to target these groups, but also ensure it remains contactless.

Meanwhile, numerous initiatives are exploring retail CBDCs. Sweden’s central bank, Riksbank, recently announced plans for pilots. The Bank of England outlined its CBDC roadmap. And both banks are part of a group of six central banks and the BIS sharing research. An, of course, China is thought to be comparatively close to releasing its digital renminbi.