The Bank of International Settlements (BIS) has shared its opinions concerning a shift in perception of Central Bank Digital Currencies (CBDCs), after several global changes. Earlier today, the bank published a special chapter on digital payments, which should be an interesting precursor to its annual report.
A Sea Change that Central Banks Have to Adopt
In the chapter, the Swiss-based financial institution focused predominantly on the issue of CBDCs and how they’ve been able to grow in interest over the past few months. The bank encouraged all central banks to treat CBDCs as their future, as their issuance has represented a “sea change.”
Expatiating, the BIS highlighted that the world had seen a significant bullish shift for CBDCs since the year began. It based that inference on the number of speeches, noting that more have framed these assets in more of a positive light.
At the beginning of the year, several central banking institutions dedicated themselves to studying CBDCs. At the World Economic Forum in January, seven central banks formed a coalition to share insights and materials on the potential impacts of the assets.
However, BIS’s report points out that the coronavirus pandemic has been the most significant factor to tip the scales in favor of CBDCs. The pandemic brought about a fear of holding cash and keeping physical currencies. Looking for more of an alternative, several countries have touted CBDCs.
Interestingly, this isn’t the first time that the BIS will be making such a call. In April, the institution published a report that urged central banks to consider developing CBDCs in light of concerns that existing payment methods could facilitate the coronavirus’ spread.
The report noted that consumer attitudes had changed negatively over using cash, especially since the World Health Organization (WHO) had warned against using banknotes. The bank also said in part:
“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.”
Libra and the Economic Race
The new report also touches on the role of several other factors, including Facebook’s proposed Libra stablecoin, China’s proposed digital currency system, and global competition have had to play in shifting the sentiment around CBDCs. During a press release for the project, Benoît Coeuré, an economic adviser with BIS, explained that Libra was the wake-up call that institutions needed to take CBDCs seriously. He also touched on the perceived notion that countries were competing to see who could develop a CBDC quicker and more efficiently.
As he explained, it’s been a case of countries trying to learn from each other. However, not all countries have adopted this method.
In February, Bloomberg reported that Norihiro Nakayama, Japan’s Vice Minister for Foreign Affairs had sought advice from the United States to help the coalition in studying CBDCs. Per the report, Nakayama had developed a pitch to persuade Uncle Sam, which included the potential threat of China’s digital currency becoming the global standard and knocking the dollar off its perch.
Several others have also pointed out the danger of China besting the U.S. to develop a CBDC. While the BIS might focus on collaborative learning, the tensions are there.