Can a pandemic take over fiduciary money?
Today, in the face of the global health crisis, contactless payment is widely recommended to limit the risks and fear of contamination by cash. Dozens of countries have raised their contactless payment limits. The European Banking Authority recommended raising the ceiling to €50 on March 25th. Mastercard claims that, with the crisis, 75% of transactions made with its cards in Europe are in contactless mode!
The global health crisis is putting the cards back on the table. Indeed, contactless payment is widely recommended to limit the risks of cash contamination. It also reduces the fear of transmission at the time.
In France, 70% of local transactions were still made in cash before the Covid-19 crisis. Since then, many local merchants only accept payment by bank card and, for some, only in contactless mode. Another example is payment by SMS for bus tickets, which has been generalised to all lines in Ile-de-France since 18 March. Of course, the dematerialization of payments extends well beyond France!
Dozens of countries have raised their contactless payment ceilings, either permanently (Poland, Ireland, Estonia, etc.) or temporarily (Germany, Greece, Netherlands, etc.). For the moment, this is not the case in France.
For its part, the European Banking Authority recommended raising the ceiling for contactless payments to €50 on 25 March. Mastercard claims that with the crisis, 75% of European transactions made with its cards are in contactless mode!
Before the coronavirus crisis, 80% of the central banks had the objective of working on the creation of digital currencies and 10% of them had pilots in progress as in Sweden. In this country, only 15% of payments are made in cash. The World Economic Forum has also published a guide for central banks on policies for setting up digital central currencies.
Will the pandemic sound the death knell for fiduciary money by accelerating the deployment of digital currency projects and democratising the use of contactless technology? Are we heading towards the domination of scriptural currencies?
In this period of health crisis, the use of cash is frightening because it is strongly linked to risks of contamination, even if these risks seem minimal according to the World Health Organization. Faced with this fear, it is highly likely that, once out of confinement, the various populations will limit the use of cash payments and prefer contactless payments, for fear of a second wave of the COVID-19 epidemic. This will change payment behaviour in the long term. Countries that have raised the ceiling for contactless payments on a permanent basis are likely to see a large adoption of this payment method in the long term.
The debate on the end of fiduciary money has been going on for decades with the main objective of combating fraud and counterfeiting. The creation of a digital currency by a central bank also means facilitating access to financial services and better control over financial exchanges.
The United States has considered the creation of a digital dollar also as part of the economic stimulus plan (CARES Act voted on March 25) to facilitate the sending of the money promised to American households (up to $3,000 per household). Given the technological constraints, costs and urgency, this solution was not retained. However, in the coming months, with the economic recovery, this project will most certainly come back to the forefront, in order to give back to the White House administration the hand of economic power. It is also the way to protect oneself from disintermediation in the face of GAFA projects such as Facebook’s Libra encryption project.
China, which is also thinking about a digital yuan, has managed to limit the use of cash payments in the daily lives of Chinese people thanks to two digital wallets: Alipay and WeChatPay! Now, only 11% of payments in convenience stores in major Chinese cities are made in cash (source: ChinaChannel). And what better way to control a little more the Chinese population than to launch this centralized digital currency. It is the ultimate tool for tracking consumption and population behavior. China, currently in the midst of its exit from the crisis, should accelerate its digital yuan project to launch a full-scale test in 2020.
The generalisation of digital currencies by central banks such as in Singapore or the Marshall Islands will undoubtedly take place over the next 5 years.
The creation of central digital currencies is the means to give back directly power to central banks and not only influence. It is the most appropriate way to fight fraud by offering ultimate traceability. It is also the response of state institutions to the threat of decentralized and unregulated cryptomoney. The health dimension then becomes the ideal argument for limiting the use of cash as much as possible!
However, a massive digitisation of the world’s currencies will raise energy and ecological problems since, according to some studies, if all the world’s financial transactions were digitised it could accelerate the rise in the planet’s temperature. Indeed, it would rise by 35,6°F in 5 years time instead of the 10 years currently forecast. To avoid this, Europe is working on low-energy impact block-chain projects. This could form the basis of Europe’s digital currency infrastructure. It should also be realised that in 2019 all digital activities consumed as much energy as all economic activities on the planet in 2010. This challenge therefore goes hand in hand with the digitisation of money.
Be that as it may, it is now obvious that COVID-19 will accelerate central digital currency projects, offering the ideal argument for this paradigm shift…2020 will undoubtedly mark the beginning of the fall of fiduciary money on a global scale in favour of scriptural and therefore digital currencies!