When COVID-19 hit, we were living in a time of rapid technological expansion. Software companies were competing internationally to release inventions that will make life easier. The supermarket in my town had just launched an app to make home deliveries possible, an Uber driver was always available one click away and my assignments were all neatly arranged on Google Classroom.
At the beginning of the year, the idea of a supermarket filled with empty shelves, streets desolate and virtual classrooms being the closest we could get to teachers seemed outrageous. Today, this is reality. Such bizarre times also mean that there are measures that must be taken to ease the blow of the once-in-a-lifetime pandemic. The two most prominent precautions are social distancing and the use of face masks. However, this leaves out a huge piece of the puzzle.
Let’s imagine a scenario where you go shopping for essential items from the grocery store nearby. You leave home wearing a mask, making sure to stay at least six feet away from other customers. When you reach the cashier, who is also adhering to these health guidelines, you reach into your bag and pull out your wallet. You pay using cash, handing it to the person standing behind the register. Do you see what I’m getting at?
One way this threat can be eliminated is by eradicating cash exchanges and using digital payment methods instead. Central bank digital currency (CBDC) is a major player in this shift to paperless transactions. Like Bitcoin, it is a wholly virtual currency and doesn’t rely on physical coins and paper. What makes it different from cryptocurrency is that it is issued by the State which gives it legal tender status. In other words, it is fully recognized by governments and is considered fiat money. The Bank for International Settlements estimates that around eighty percent of central banks are experimenting with some form of CBDC. This is a testament to how serious banks are taking this novel technology. Some of the results are promising too; ten percent of those banks are actually currently using pilot projects.
The International Monetary Fund (IMF) outlines some advantages that come with using CBDC. First, consumers may store their CBDC without needing bank accounts to hold the digitized currency. This will push for greater financial inclusion by allowing individuals that don’t have a bank account to apply for jobs and mortgages, as both these services require bank accounts. Second, this will make assimilation easier for apps that work in payment transactions, such as Venmo. The continuing rise of these apps and their integration with CBDC is essential to building a paperless cash future.
The IMF then highlights two disadvantages that may come with CBDC. The first included a threat with which we are all too familiar: cyberattacks. These include hacking tools that could disrupt banking services and prove detrimental to both the bank’s reputation and the consumer’s satisfaction. The second disadvantage leans more towards the financial side of things, as it talks about commercial banks raising interest rates as consumers start moving their funds to CBDC.
The rise of CBDC and full digitalization of currency are predictions for how a post-COVID world might look. The truth is, no one has the slightest idea of when this chapter of history will end and another will begin. However, rest assured, the next chapter is going to look nothing like the previous ones.
