The coronavirus pandemic has prompted retailers to ask customers to wear masks, maintain physical distancing and avoid the use of cash when possible. Despite scientific evidence indicating that currency doesn’t transmit COVID-19, there continues to be an unprecedented weariness around the use of cash altogether.
At the peak of the global pandemic, banks in China and South Korea began disinfecting and quarantining bank notes to slow the spread of the novel coronavirus. Other central banks have refused to adopt such measures, communicating that risks posed by handling cash are low compared to other objects that are frequently touched, such as PIN pads.
The Bank of Canada, for example, encouraged retailers to stop refusing cash because it could disproportionately affect those who are dependent on cash as a form of payment.
Despite such assurances, fear of transmitting the virus could accelerate the trend of digital payment apps and reduce the use of cash in society.
Although digital payment systems such as Apple Pay, Venmo and Google Pay have become much more widespread in recent years, these payment apps were not meant to replace existing currency. These apps also haven’t substantially reduced the amount of cash in circulation.
Cashless in a crisis
The Bank for International Settlements, which advises central banks around the world, released a bulletin in April that said the pandemic could speed up the shift toward digital payments around the world, including central bank digital currencies. That’s not a surprise. A global crisis can often act as a catalyst for structural change.
For instance, the 2009 Västberga heist led to a cashless society in Sweden. As a string of robberies occurred in shops, banks and even buses, Sweden moved to reduce cash circulation as a way to protect workers. Cash use in Sweden has since been on the decline, from 39 per cent in 2010 to 13 per cent in 2018. Currently about 20 per cent of retailers in the country no longer accept cash.
Sweden’s central bank, the Riksbank, announced in 2017 that it would initiate a pilot program exploring the viability of a national digital currency called the e-krona. The Riksbank recently launched a joint project with Accenture to determine the technical aspects of the e-krona. The only details released so far indicate the digital currency will use blockchain technology. However, previous reports from the pilot concluded the e-krona would be centrally managed, ensuring the central bank would have firm control over money supply.
China’s digital currency trials
China recently launched a pilot program of its digital yuan in four major cities, but details of the national digital currency are scarce.
The digital yuan is backed by China’s central bank, the People’s Bank of China, and pegged to the national currency. This sovereign digital currency is unlikely to resemble traditional cryptocurrencies such as Bitcoin, which support decentralization and…