Cash is a problem today: Physical money can carry viruses and bacteria. Electronic cash is too slow to deliver government stimuli to businesses and households. COVID has made it obvious: We need to adopt digital currencies.
Over the past weeks, the Coronavirus outbreak has dramatically impacted the way we interact. People work from home and get together via video-chat-platforms, e-commerce is experiencing a new boom, and even medical check-ups are being done through digital channels.
While digital technologies are seeing their prime-time, the financial system has started to go through a paradigm shift as well: Businesses and governments are massively reducing the use of physical cash, accelerating the trend towards a cashless society.
“Dirty Cash” becomes a life-threatening risk during a pandemic
Physical cash represents a major risk factor during a pandemic. It changes hands several times a day and can easily carry viruses and bacteria. With now more than one million COVID-infections worldwide, “dirty money” has become a life-threatening danger. That’s why South Korea’s central bank had temporarily taken cash out of circulation last month. Likewise, the People’s Bank of China has recalled cash to either clean it with an ultraviolet light or destroy it.
Amidst these developments, researchers from the Bank of International Settlements (BIS) suggest that COVID-19 might accelerate the adoption of digital payments and fuel the debate over central bank digital currencies. In a forecast in BIS’ April 3 Bulletin, the researchers write:
“Irrespective of whether concerns are justified or not, perceptions that cash could spread pathogens may change payment behavior by users and firms.”
Digital currencies as crisis-tokens
Apart from health considerations, digital currencies are also being discussed as a way to provide economic stimuli more quickly.
The House Democrats of the US-Congress have included a digital dollar in the draft bill for the recent stimuli package. The idea was to enable the central bank to distribute digital money directly to businesses and households, which should result in faster and more inclusive financial aid. Underbanked households, for example, could open digital wallets at post offices and get access to funds that way.
In the US, the plans for a digital dollar have fallen by the wayside for now. But European lawmakers have picked up on the idea and put together similar initiatives. The German government, for example, is discussing Euro-Tokens to provide blockchain-based consumption vouchers. In France, the central bank launched an experimental program to test the integration of a digital euro in settlement procedures.
- Six Central Banks Form Working Group Around Digital Currency Use Case
- The Rise of Institutional Investment in Cryptocurrency
A cashless society needs blockchain-infrastructure
Today, “cashless” doesn’t necessarily mean blockchain-based cryptocurrencies, but eventually, it will. Without a blockchain-based infrastructure, companies like Visa or Mastercard will become the gatekeepers of spending. The result will be quasi-monopolies and high transaction costs.
Instead, a cashless society needs to be inclusive and accessible for everyone without high costs and bureaucratic hurdles. Blockchain can easily create the infrastructure to make it happen, and as a result of the pandemic, the ball is now rolling.