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Covid-19 accelerating digital payment adoption globally: BIS

(ATF) The coronavirus pandemic is accelerating central bank interest in promoting the use of digital payments and efforts are on the rise to issue central bank digital currencies (CBDCs) to create safe and reliable settlement instruments for transacting in the digital economy, the Bank for International Settlements said in a new report.

“In many parts of the world, cash will continue to decline as a means of payment. Many technologies aim to improve payment access and security, including the use of biometrics,” it said in a report published on Wednesday. “If anything, the demand for faster, more convenient and safer payments is likely to accelerate with the Covid-19 crisis.”

The umbrella group for the world’s largest central banks said that while authorities will foremost need to support competitive private sector markets that harness new digital technologies, new public payment instruments may gain traction if central banks play a key role.

“CBDCs, if properly designed, have the potential to give rise to a new payment mechanism that is interoperable by default, fosters competition among private sector intermediaries, and sets high standards for safety and risk management,” it said.

It said the evolution of CBDCs was not so much a reaction to cryptocurrencies and private sector “stablecoin” proposals, but rather a focused technological effort by central banks to pursue several public policy objectives at once.

“These objectives include financial inclusion; guaranteeing safety and integrity in digital payments; establishing resilient, fast and inexpensive payments; and encouraging continued innovation in payments.”

China, a pioneer in the CBDC advancements, launched a pilot programme in May this year in four cities – Shenzhen, Xiong’an, Chengdu and Suzhou. But People’s Bank of China governor Yi Gang said there was no timeline for its issuance.

Yi Gang said the People’s Bank of China is carrying out research and development in the digital yuan system jointly with commercial banks and other institutions. The R&D includes top-level design, standard formulation, function development, joint debugging tests, under the premise of a double-layer operation, cash (M0) substitution, and controllable anonymity.

“We have a good relationship with the PBoC, we are following this very closely,” Benoît Coeuré, head of the BIS Innovation Hub, said. “It is too early to say what the experiment will yield.”

Hyun Song Shin, economic adviser and head of research at the BIS, said it most central banks are driven to CBDCs for safety, efficiency and financial stability.

Analysts say that China is in a good position to adopt this innovation financial innovation.

“With over 800 million users actively using mobile payment systems such as WeChat Pay and AliPay, China is well positioned to adopt DC/EP – digital currency and electronic payment,” BofA Securities said in a report.

ALSO SEE: China’s digital push could help internationalise the yuan 

Umesh Desai

Umesh Desai is the Executive Editor at Asia Financial. Prior to this he spent over two decades with Reuters News as Asia Pacific Chief Correspondent in Hong Kong and Bureau Chief in Bombay. Before becoming a journalist Umesh was a credit ratings analyst with Moody's arm in India - ICRA. A chartered accountant by training, Umesh began his career as an equity analyst. His Twitter handle is @umesh_desai

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