COVID-19 Crisis Highlights the Potential Economic Benefits of CBDCs
There have been several advancements and updates regarding central bank digital currency (CBDC) initiatives. In China, it was reported on March 24 that the People’s Bank of China (PBoC) has reportedly completed the core development of its CBDC and is in the process of preparing legislation for its release. Meanwhile, in the U.S., the House of Representatives attempted to induce the Federal Reserve to create a digital dollar as part of the response to COVID-19. Such calls for a digital dollar have been echoed by the Digital Dollar Foundation that was established in January by the ex-head of the CFTC, Christopher Giancarlo. More recently on Monday the Bank of Korea, South Korea’s central bank announced that it has launched a pilot program for a CBDC while in France, The Banque de France, the nation’s central bank released a request on March 27 for proposals for CBDC designs with a view to informing both French and Eurozone policy towards a full CBDC initiative.
Medical studies have shown that physical cash can be a carrier of the virus, which has increased interest in digital currency solutions. At the same time, national authorities have been focusing on deploying fiscal stimulus programs in an effort to contain the economic fallout. Digital currency programs could allow for the much faster disbursement of such funds, relative to other proposed methods such as the postage of cheques. To-date, no CBDC project has explicitly stated that it will use blockchain or distributed ledger technology, however, the use of publicly-readable ledgers could potentially increase the confidence and trust of national populations in the use and distribution of any relief funds by governments by dispersing funds via a transparent and auditable mechanism.