It seems obvious that the coronavirus pandemic will cause an economic crisis. Some experts predict that this could be even more serious than in 1929 and 2008. Some countries are therefore trying to find solutions that should at least partially improve the situation. One of them is the so-called CBDC, which is discussed in this article.
What is CBDC?
The abbreviation CBDC (Central Bank Digital Currency) refers to virtual currencies issued by the central banks of each country. They can simply be described as digital fiat currencies that complement and gradually replace traditional banknotes and coins. In recent years there have been discussions in professional circles about the future of cash. CBDC should speed up the process of its exchange through online payment systems.
What about the fiat currency?
Does this mean that the fiat currency is out because of this process? No, it’s more or less the transition from the physical to the digital world. Virtual currencies issued by central banks will remain under direct state control and will be subject to the same restrictions as physical currencies. They only pass from the physical to digital world. For example, Sweden plans to launch an e-crown project while China is preparing its e-yuan. The CBDC does not mean a departure from fiat currencies as such.
What role does the coronavirus play in this?
A question that at first glance does not make much sense. Why should a virus affect the way we pay for services and goods? The answer is quite simple – several scientific studies have indicated the possibility of passing the disease through banknotes. The virus is reportedly able to survive on its surface for several days. Although not yet fully confirmed, they have had a significant impact on consumer behavior in affected European countries.
With this risk many businesses and online stores do not accept cash payments. The same procedure was used by delivery people and goods suppliers. This significantly reduces cash flow, even in countries where card or online payments are not deeply rooted. The path of the digital currency is beautifully cleaned.
How can CBDC help the economy?
Experts promise that the accelerated development of CBDC will affect not only health. It also provides many significant economic benefits. Countries in their own virtual currencies receive a source of easily accessible financial resources that they can transfer to their citizens and support demand. The implementation of extensive security functions will also help prevent money laundering and counterfeiting, the intensity of which increases especially in times of major crises.
The second advantage is the acceleration of cross-border payments. Although their volume is growing rapidly in the context of increasing globalization, little has changed in terms of speed. This is another unpleasant obstacle in efforts to quickly heal the global economy that the massive CBDC boom can overcome.
What about traditional cryptocurrencies?
The current situation can also help them. If digital currencies are expanded, those supported by governments – the perception will change fundamentally. Suddenly they will be seen by the majority of society as a regular means of exchanging and preserving values.