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
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.
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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.
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.
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.