The intensity of recent searches for those two words, according to graphics in the BIS paper, is most acute in Australia and France.
Around the world, countries are sterilising their bank notes even though there are, as yet, no known cases of transmission via cash. The virus appears, however, to survive longer on non-porous materials like plastic and steel, which probably explains consumers’ anxiety.
Historically, in times of crisis, consumers hoarded cash. This time, however, appears to be different and the pandemic could accelerate the trend away from cash and towards digital transactions. It is already generating increased interest in digital currencies, with China said to be close to releasing a digital version of its currency.
In recent years most central banks have started researching the potential for digital currencies, with their efforts intensifying after Facebook attempted to launch its own global digital currency, Libra.
The Libra rollout stalled after some of its core backers pulled out in the face of strong central bank and legislators’ opposition to the notion of a privately-owned digital currency, and it appears Facebook might try to alter its strategy towards the use of Libra’s infrastructure as a platform for third parties’ digital payment ambitions.
Facebook was pursuing a “stable coin” strategy, with Libra’s value established by a basket of physical currencies whose value would match that of the value of the stable coins in circulation.
That is quite different – and was far more of a threat to central banks and their influence over their financial systems — than a conventional cryptocurrency like Bitcoin, whose value is very unstable and therefore makes it a poor medium of exchange.
There’s the risk of a generational divide if central banks move too quickly on the digital front, given that the profile of those most reliant on cash transactions tilts heavily towards older people.
Libra’s launch galvanised the central banks’ interest in their own digital currencies, as well as their efforts in thwarting Facebook’s ambitions.
Central banks including the Reserve Bank have been researching and trialling elements of digital currency platforms. The RBA has run simulations of a wholesale system, for instance, for interbank settlements.
Most of the central banks are wary about rushing towards a digital currency future because of the potential disruptions it might cause to their existing banking systems if people were given a choice of holding digital currency issued directly by a central bank rather depositing funds with privately-owned commercial banks.
In financial markets like Australia’s or Canada’s, where the banking systems operated soundly through the global financial crisis, have sophisticated digital payment systems and now, after significant strengthening of their capital bases and liquidity, are supporting their economies through the pandemic, there’s no urgency to fundamentally change the structure of – to disintermediate — their financial systems.
There’s also the risk of a generational divide if central banks move too quickly on the digital front, given that the profile of those most reliant on cash transactions tilts heavily towards older people.
Nevertheless, the seemingly inexorable trend towards digitisation of payment systems, combined with the likelihood that other countries like Sweden and China will move early and the potential for the big tech companies like Facebook, Google or Amazon to create their own currencies and payment systems outside traditional banking systems, means the central banks have no option but to continue to explore the potential of digital currencies.
That exploration will have a sharper edge if China digitises its currency. Only this week, China recommitted itself to the introduction of a digital yuan.
It sees a digitised currency as a way of increasing its global influence and reducing the dominance of the US dollar in global commerce and finance, a dominance that enables the US to exert geopolitical influence through the global financial system.
China has some unlikely allies, with no little thanks to Donald Trump’s diminishing of America’s role in key international institutions, his “America First” agenda and his willingness to use tariffs and sanctions against America’s foes.
The Bank of England governor, Mark Carney, shocked many last year when he advocated development of a “multi-polar” digital currency to displace the US dollar as the world’s reserve currency, arguing that there was growing asymmetry between the dominance of the dollar in the global financial system and the diminished US share of global economic activity.
The US accounts for only about 10 per cent of world trade and 15 per cent of global GDP but two thirds of all countries peg their currency to the US dollar, and more than half of global trade is invoiced in US dollars. Global financial market activity is dominated by the greenback.
As the US withdraws from global economic leadership, a “synthetic hegemonic currency” would dampen the domineering influence of the US dollar on global trade and the impact of domestic developments in the US economy and markets wouldn’t spill over to the same degree into other economies and markets, Carney said.
He didn’t say – but China would be aware – that a reduced role for the US dollar would also have a negative impact on the US economy and living standards. Its status as the world’s reserve economy allows Americans to live well beyond their means, lowering the cost of imports and Americans’ cost of borrowing.
Thus there are geopolitical dimensions to the push towards digital currencies that coincide with the sharper edge that the pandemic has given central banks’ interest in facilitating digital payments and investigating digital currencies.
Stephen is one of Australia’s most respected business journalists. He was most recently co-founder and associate editor of the Business Spectator website and an associate editor and senior columnist at The Australian.