The coronavirus pandemic has accelerated central banks ’ experiment with sovereign digital currencies, as they look to distribute stimulus money more efficiently without using cash, according to the Bank for International Settlements (BIS). And an ongoing pilot conducted by the People’s Bank of China (PBOC), in particular, has provided many takeaways for its counterparts, Benoit Coeure, head of BIS Innovation Hub, said. Its digital yuan is being tested in pilot cities to disburse transport subsidies, and is expected to become the world’s first sovereign digital currency to go live. “ China has been blazing the trail i n central bank digital currencies,” he said. “What they are doing will bring a lot of lessons for other central banks.” The PBOC’s test also comes amid swift changes in retail payment behaviour globally during the pandemic, as is evident in a spike in the use of contactless payment cards and declining use of cash, said Hyun Song Shin, an economic adviser at the BIS. Banknotes and coins are increasingly being viewed as a transmission medium of the virus. At the same time, the pandemic has also spurred governments’ fiscal responses to the related economic fallout. The world economy is forecast to shrink by 4.9 per cent this year, according to the International Monetary Fund. Explainer: What is China’s cryptocurrency alternative sovereign digital currency? Governments have launched relief and loan programmes targeted at small businesses and individuals affected by the crisis. Fiscal support from G20 countries this year is estimated at US$7 trillion, equivalent to 10.3 per cent of their 2019 gross domestic product, according to the Centre for Strategic and International Studies, a Washington-based think tank. The time and cost at which past crisis loans and stimulus monies traditionally reach end users have led central banks globally to step up their research and pilot programmes on sovereign digital currencies. Where disbursements can be made directly in a speedy way without operational risks, “a fast payment system that is widely accessible can make [government disbursements] more effective and timely,” Shin said. Shin and Coeure were speaking at a BIS media briefing this week on payments in the digital era, which forms part of its annual economic report. In China, the PBOC has been at the forefront of research on digital currencies since 2014 under former governor Zhou Xiaochuan. As Covid-19 infections peaked in April, small-scale tests were conducted in Suzhou, Shenzhen, XiongAn and Chengdu. The pilot involved Agricultural Bank of China, which launched an e-wallet that keeps track of the digital currency issued by the PBOC. The Hong Kong Monetary Authority (HKMA) is also pushing ahead with its own. Unlike the PBOC’s project which supports retail payments, the HKMA and its Thai counterpart are building a cross-border digital payment system to support bilateral trade. Called Project Inthanon-LionRock , their sovereign digital currencies will ultimately help companies located in both markets save costs through more competitive foreign exchange rates, and achieve real-time settlement by cutting out layers of intermediaries in the process. As the project is based on the distributed ledger technology, its smart contracts could also help governments track if their relief funds have been misused, said Guillaume Rico, director at consulting firm Chappuis Halder & Co. Smart contracts are programmes developed on the ledger that execute preset terms and conditions. “By programming the smart contract and issuing digital currencies to companies applying for these subsidies and loans, there could be better monitoring and tracing of fund use to ensure the fiscal support is hitting the government’s economic objectives,” Rico said.