Coronavirus is hastening central banks’ efforts on digital currency plans to deliver faster pandemic stimulus

Central banks are stepping up research and pilot programmes on sovereign digital currencies to deliver faster Covid-19 stimulus

Pilot conducted by Chinese central bank has provided many takeaways for counterparts, head of BIS Innovation Hub says

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The coronavirus pandemic is hastening central banks’ efforts to bring their digital currencies live to help speed up delivery of stimulus funds. Photo: Shutterstock

Published: 2:06pm, 26 Jun 2020Updated: 11:03pm, 26 Jun 2020

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 in 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.

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.