Cash and Central Banks: New Research Shows Why Fear Could Spark Adoption of Digital Currencies

The Bank for International Settlements (BIS) has released a new report on cash and the future of payments. Research from the Swiss-based bank for central banks shows that growing concern about cash and how the coronavirus is transmitted is among several factors that could accelerate the use of digital payments and the adoption of digital currencies.

According to the report,

“The Covid-19 pandemic has led to unprecedented public concerns about viral transmission via cash. Central banks report a large increase in queries from the media on the safety of using cash. The number of internet searches pertaining to both ‘cash’ and ‘virus’ is at record highs.”

While a new study from National Institutes of Health, CDC, UCLA and Princeton University scientists in The New England Journal of Medicine shows that coronavirus can survive on surfaces, the probability of contracting the virus through banknotes and coins appears to be very unlikely, unless “someone is using a banknote to sneeze in,” says Dr. Christine Tait-Burkard, an expert in infection and immunity at the Roslin Institute at the University of Edinburgh.

The BIS report concludes,

“To date, there are no known cases of Covid-19 transmission via banknotes or coins. Moreover, it is unclear if such transmission is material compared with person-to-person transmission or transmission through other objects or physical proximity.”

Despite widely-available data that viral transmission via cash is low, BIS researchers believe the public’s behavior towards payments may change. As people try to minimize contact with cash, the BIS expects a surge in the use of digital payments including mobile, card and online channels.

The researchers also speculate that the increase in digital adoption opens the door for the development and use of central bank digital currencies (CBDC).

“The pandemic may amplify calls to defend the role of cash – but also calls for central bank digital currencies.”

The shift from physical to digital payments, however, could have an undesirable impact on millions of consumers, including the unbanked and older people. The researchers state,

“If cash is not generally accepted as a means of payment, this could open a ‘payments divide’ between those with access to digital payments and those without.”

To bridge the “payments divide”, the authors conclude that digital currencies such as central bank digital currencies (CBDCs) could provide contact-free transactions offering broad access and acceptability while alleviating concerns about viral transmission.

“The pandemic may hence put calls for CBDCs into sharper focus, highlighting the value of having access to diverse means of payments, and the need for any means of payments to be resilient against a broad range of threats.”

You can check out the full report here.

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