BIS researchers consider payment behavioral change under Covid-19, retail CBDC in spotlight

Irrespective of whether concerns are justified or not, perceptions that cash could spread pathogens may change payment behaviour by users and firms. Looking ahead, developments could speed up the shift toward digital payments. This could open a divide in access to payments instruments, which could negatively impact unbanked and older consumers.

Some findings:

  • The Covid-19 pandemic has fanned public concerns that the coronavirus could be transmitted by cash. Scientific evidence suggests that the probability of transmission via banknotes is low when compared with other frequently-touched objects, such as credit card terminals or PIN pads.
  • To bolster trust in cash, central banks are actively communicating, urging continued acceptance of cash and, in some instances, sterilizing or quarantining banknotes. Some encourage contactless payments.
  • The pandemic may amplify calls to defend the role of cash – but also calls for central bank digital currencies.

In past crises, demand for cash has often increased, as consumers have sought a stable store of value and medium of exchange. At the current juncture, data do not yet paint a uniform picture. In the United States, cash in circulation has recently increased. But in the United Kingdom, automated teller machine (ATM) withdrawals have fallen.

In the medium term, the outbreak could in principle lead to both higher precautionary holdings of cash by consumers and a structural increase in the use of mobile, card and online payments. These developments may differ across societies, and between different consumers. Current developments bring digital payments to the fore.

A realistic assessment of the risks of transmission through cash is particularly important because there could be distributional consequences of any move away from cash. If cash is not generally accepted as a means of payment, this could open a ‘payments divide’ between those with access to digital payments and those without. This in turn could have an especially severe impact on unbanked and older consumers. In London, one reporter has already noted the difficulties of paying with cash, and the consequences for the 1.3 million unbanked consumers in the United Kingdom.

In many of the emerging market and developing economies where authorities have recently called for greater use of digital payments, access to such alternatives is far from universal. This could remain an important debate going forward, potentially asking for a strengthening of the role of cash.

Yet not all digital payments are immune. For instance, debit and credit card transactions generally require a signature or a PIN entry at a merchant-owned device for larger transactions. Contactless card payments, which are popular in several countries do not require a PIN for small transactions. Recently, authorities, banks and card networks in Austria, Germany, Hungary, Ireland, the Netherlands, the United Kingdom and elsewhere have set higher transaction limits for contactless payments.

Digital wallets or other smartphone-based payment interfaces (eg stored card details or QR codes) where no physical contact of the same object by multiple persons takes place are further potential solutions. Online payments for e-commerce are of course not susceptible to viral transmission.

Resilient and accessible central bank operated payment infrastructures could quickly become more prominent, including retail central bank digital currencies (CBDCs). Such infrastructures would need to withstand a large range of shocks, including pandemics and cyber attacks, and the report lays out potential architectures for resilient CBDC and technological options allowing for broad acceptability.

In the context of the current crisis, CBDC would in particular have to be designed allowing for access options for the unbanked and (contact-free) technical interfaces suitable for the whole population.6 The pandemic may hence put calls for CBDCs into sharper focus, highlighting the value of having access to diverse means of payments, and the need for any means of payments to be resilient against a broad range of threats.

Read the full report

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