The COVID-19 outbreak has been terrorizing the globe and its effects can be seen across every sector of our day to day lives. The financial markets have all sustained damages and are still recovering from what is being compared to the 2008 financial crisis. Besides the traditional market, the crypto industry has also reacted to a sudden lack of liquidity fuelled by the outbreak, with Bitcoin hitting 2020 low.
However, the event has boosted cryptocurrency use in a very unusual way. Fiat currencies made of paper, polymer, or cotton, are all mediums that can carry the deadly virus. This has been confirmed by the World Health Organization (WHO) and also in a study from Germany that detected Coronavirus survive on notes, coins, and even the plastic exteriors of ATMs for several days.
The Bank of International Settlements (BIS), a 600-member international financial institution representing the central banks of 60 countries, has issued a report in this regard citing concerns about the virus spreading through these traditional payment methods, urging central banks to consider the use of Central Bank Digital Currencies (CBDCs).
As per the report published on April 3, the general attitude towards the use of physical currency has changed in response to the warning from the World Health Organization. The report notes that internet searches regarding the terms “Cash Covid”, “Coin Covid”, “Cash virus”, “Coin virus”, and “Cash corona” has hit record highs, especially in nations where smaller denomination notes are used on a day-to-day basis.
BIS notes that the risks of coming in contact with the virus via cashless payment methods like credit card terminals and ATM machines is greater than that of using cash. The report notes:
“Scientific evidence suggests that the probability of transmission via banknotes is low when compared with other frequently-touched objects, such as credit card terminals or PIN pads.”
The fall of Cash?
Furthermore, the report has noted that past crises have seen demand for cash rise, as people look for a stable store of value as well as a mode of exchange. The BIS reports that the United States has seen increased cash circulation, while the United Kingdom has seen a decline in ATM withdrawals. Some jurisdictions have also increased transaction limits on contactless payments.
In the short term, the report predicts that the outbreak could “lead to both higher precautionary holdings of cash by consumers and a structural increase in the use of mobile, card and online payments.”
With the above factors in play, the BIS anticipates that the central bank operated digital payment methods like CBDCs could “quickly” gain popularity. However, the report adds that such new infrastructures must be able to withstand future shocks “including pandemics and cyber attacks.”
“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.”
The BIS has never been in favour of decentralized cryptocurrencies like Bitcoin, but the popularity gained by CBDCs and the potential the technology holds, have forced them to question their previous views regarding this matter.
The distaste for cash among the people could be an opportunity for authorities to releasing their own CBDCs, also allowing them to seize tighter control over the economy. It would hence enable an era of financial experimentation as governments tighten the reins around currency more than ever before. This would be the first real test for cryptocurrencies and CBDCs as a solid replacement for fiat money founded on the uncertainty of the traditional system.
In an interview with Chinese media outlet China Daily, Yang Dong, Director of Blockchain Research at China’s Renmin University commented:
“Institutions and individuals will be more inclined to use non-direct contact transaction media including digital currencies in a short period of time, and this tendency will quickly form a user stickiness. Digital currencies will use this as an opportunity to accelerate Its distribution and application.”