CBDC: A Pandemic-induced Fad or the Future?

A single screenshot of a payment-centric app made headlines recently, as it unveiled that a far broader project was underway- the testing of a central bank digital currency (CBDC) in China [1].  The payment app, available to a select group of citizens in specific regions of China, is utilizing a “digital yuan” that might someday replace traditional currencies in China and beyond [1].

The development of a CBDC in China began as early as 2014, as online transactions began skyrocketing.  Fearing the consequences of relying on payment-based apps during times of crisis, China set out to provide a government-sponsored take on digital payment [2].  

A CBDC would foster numerous other benefits for the Chinese government, such as an increased capacity to deploy highly nuanced loans and detect tax evasion [2].  However, many feel that recent developments in CBDC technology are owed to the coronavirus pandemic. 

In particular, the desire to avoid the spread of infection had lead countless banks (including the People’s Bank of China) to desensitize their bills (employing methods like UV radiation).  As a result, many are starting to see the appeal of digitized cash [3].  This has been exacerbated by the need for relief checks and rapid stimulus in order to combat the economic side-effects of the pandemic.  Digital cash could be a mechanism by which such relief efforts are deployed, as suggested by the President of UnionBank in the Philippines [3].  

However, one professor of competition law at Leeds offers an opposing viewpoint, claiming that the “primary drive behind” CBDCs has little to do with the short-term needs of the pandemics [3].  The implication is that a downward trend in the spread of coronavirus will coincide with a decline in interest towards CBDCs.  This is especially true to the current instability of the global economy- the unfamiliar and relatively untested nature of digital cash could make it a source of economic fallout, as posited by experts like Giancarlo of the CFTC [3].  

With a strong group of proponents- both within governments and academia- as well as fervent opponents, it remains to be seen whether CBDC will truly revolutionize transactions.  

[1] : https://www.ledgerinsights.com/china-digital-currency-wallet-dcep-cbdc/

[2] : https://www.economist.com/finance-and-economics/2020/04/25/china-aims-to-launch-the-worlds-first-official-digital-currency

[3] : https://cointelegraph.com/news/coronavirus-crisis-accelerates-cbdc-race-cash-no-longer-untouchable