Opinion | New crown epidemic accelerates the arrival of central bank digital currency, CBDC may solve one of the biggest challenges facing the epidemic

For the central bank that is currently considering digital currency as fiat currency, this new coronary pneumonia crisis has come too quickly, and financial problems due to health concerns may accelerate the arrival of central bank digital currency.

Opinion: The new crown pneumonia will accelerate the arrival of the central bank's digital currency and solve some challenges brought about by the epidemic and economic recession

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In an emergency, how to deliver cash from the government and the central bank to the place where it is most needed in a timely, fair, and safe manner has always been one of the biggest challenges in overcoming the new coronary pneumonia pandemic and the severe economic recession it has caused. Central bank digital currency or CBDC can help solve some of these problems.

Although there are already many people who conduct electronic money operations through bank accounts, the difference between fiat currency digital cash is that it operates in the same way as traditional banknotes and coins, but will use a digital format similar to cryptocurrencies (such as bitcoin) , And is used to pay or transfer between individuals through a blockchain digital wallet. Unlike cryptocurrencies such as Bitcoin, Central Bank Digital Currency (CBDC) is created and guaranteed by the central bank.

In addition to avoiding the health risks caused by the physical transfer of cash in a pandemic, the advantages of turning to CBDC also include the ability of the central bank to quickly inject cash into households and businesses, so as to achieve the tracking and withdrawal of final funds, even when necessary Taxes are sometimes imposed to prevent cash hoarders from evading negative bank interest rates.

On the other hand, so far, the central bank has been hesitant due to technical, security and privacy issues, and is also concerned about the stability risks that the influx of CBDC will bring to existing banks and payment systems.

Prior to the outbreak of the New Coronavirus, the central banks of the United Kingdom, the Eurozone, Japan, Canada, Sweden and Switzerland and the Bank for International Settlements were scheduled to meet this month to summarize the findings of the digital cash plan. According to Marion Laboure, an analyst at Deutsche Bank, these central banks, which represent about one-fifth of the world's population, are likely to issue universal digital currencies within three years. The update on the planned meeting in April is currently unclear. But with it, during the economic turmoil, the central bank and government were under pressure to provide cash to households and businesses, which would cause interest rate cuts in major Western economies that have not been seen in a century.

The conventional method of injecting funds into the banking system through the so-called “quantitative easing”, that is, the central bank injects cash into commercial banks through the purchase of bonds, has reached trillions of dollars. This was followed by trillions of dollars in government fiscal expenditures to support healthcare, pay salaries, and even write checks. The bill is huge, but the cost of debt is controlled by the central bank buying government bonds.

So far, everything is fine. To a certain extent, the credit market has been stabilized, but what about the entire public and the entire economy?

Digital quantitative easing (QE) for all people?

The large amount of economic activity stopped to stop the spread of the coronavirus means that the government and the central bank will have difficulty raising funds directly from businesses that lack cash flow and workers who are evicted or fired.

Since the last economic collapse 12 years ago, the widespread criticism of QE is that large amounts of funds have been squeezed together by banks. Because the low demand for loans prevented it from flowing to the households and companies most in need of it, and in the end it only swelled the prices held by the wealthiest people-ultimately leading to slow growth, increased social inequality and a wave of political frustration.

Many experts believe that the central bank digital currency can provide some way to solve these problems. The “no matter what measures” mantra proposed by most policymakers means that policies that were previously considered taboo are suddenly mixed together or are being debated and discussed in public.

Only on Thursday, if the debt market was too cumbersome, the Bank of England Bank of England agreed to lend directly to the British government for its new coronary pneumonia COVID-19 expenditure plan. Soon after, the Fed announced another huge $ 2.3 trillion plan, this time through banks for small and medium-sized enterprises, providing loans directly to local governments, and even loans to companies with poor credit ratings.

In addition, some recommendations for CBDC have emerged that may incorporate all methods related to this shock and the policy difficulties it raises. Economists Julia Coronado and Simon Potter advocated a digital payment provider system in a paper published last week for the Petersen Institute in Washington The system allows the Fed to pay households directly to stabilize income during periods of low interest rates. They believe that this kind of digital currency supported by the Fed can not only serve as a stabilizer to enhance automatic finances, but also "use helicopter funds or quantitative easing power."

The gist of the proposal relates to the "recession insurance bonds" they support-zero-coupon bonds authorized by Congress, whose share of GDP is sufficient to support the demand in a severe economic recession. The US Treasury will credit these bonds to household digital accounts, and the Fed will purchase them from households during the downturn after the policy rate drops to zero.