THE COVID19 pandemic has compelled the business sector to impose “no mask, no entry” policy, maintain physical distancing and avoid the use of cash when possible. Regardless of scientific evidence indicating that paper money doesn’t transmit COVID-19, there continues to be an unprecedented disinfection of paper money. At the peak of the global pandemic, banks in China and South Korea disinfected and quarantined bank notes to slow the spread of the coronavirus. Other central banks however have refused to adopt such measures, because they claimed transmitting that risks posed by handling cash are low compared to other objects that are frequently touched, such as ATM keypads.
Some banks, for example, encouraged retailers to stop refusing cash because it could affect those who are dependent on cash payment. Despite such assurances, fear of transmitting the virus could accelerate the trend of digital payment apps and reduce the use of cash in society. Although digital payment systems such as Globe’s GCash, Lazada Wallet, Grab Pay, Apple Pay, Google Pay, and PayPal have become much more widespread in recent years, these payment apps were not meant to replace existing currency. These apps also haven’t substantially reduced the amount of cash in circulation.
So are we ready for a digital Philippine peso or E-peso as medium of exchange or as money for use on all digital means? The internet has truly revolutionized the world since its inception many decades ago and has created a cashless, paperless and contactless society. Due to the many conveniences afforded by the digitalization of commerce, paper money as a medium of exchange is now regarded as impractical. Hence, the popularity of electronic money, credit and debit cards and other forms of digital payment systems. These technological solutions, accessibility and speed will gain more traction during and post-COVID19 pandemic era. Sovereign or central bank-backed digital currency will be valued for the security and stability it represents.
At present there is no sovereign digital currency in national circulation, what we have is a patchwork of digital payment platforms and electronic money systems operated by private financial institutions like banks. Likewise there is no enabling law, but there is a pending bill in Congress authored by Quirino Rep. Junie Cua to fill the gap mandating the creation, adoption and perfection of Bangko Sentral Digital Peso (BSDP). This legislation, House Bill No. 6646, is the digital equivalent of the paper peso and possesses all its characteristics and attributes. It is a valid legal tender that can be used to purchase goods and services, and to settle financial obligations such as debts and taxes. Cua explained that this BSDP will be recognized as the only digital legal tender in the country, it is risk-free, durable, secure and portable fiat currency accessible to the public even as the use of paper money declines and new forms of privately-issued digital money become more widespread.
Cua also pointed out, most developing countries are moving to adopt their own central bank digital currency for its socio-economic benefits. A sovereign-backed digital currency promotes financial inclusion by enabling monetary authorities to distribute money digitally to all sectors of society. It helps the government combat crimes such as money laundering and corruption due to the ability of its underlying technology to track the flow of money. It lowers transaction costs by allowing seamless payments between merchants and clients, thus benefiting the public at large. The BSDP shall be allowed and encouraged for international transactions, even if it involves exchange with other currencies. The BSDP shall use a transaction ledger system to assure its authenticity, as security against counterfeiting and as a guard against double or multiple bookings of a single transaction. The transaction ledger system is to be called a log chain. Each newly minted BSDP will have its own unique log chain.
In Denmark, the Danish government proposed getting rid of the obligation for selected retailers to accept payment in cash, moving the country closer to a “cashless” economy. Nearly a third of the Danish population uses MobilePay, a smartphone application for transferring money. In Ecuador, a law passed by the National Assembly gives the government permission to make payments in electronic currency and proposes the creation of a national digital currency. In 2016, the city government of Zug, Switzerland accepted digital currency in payment of city fees. It added bitcoin as a means of paying small amounts, up to CHF 200. In order to reduce risk, Zug immediately converts any bitcoin received into the Swiss currency.
Many existing digital currencies have not yet seen widespread usage, and may not be easily used or exchanged. Banks generally do not accept or offer services for them. There are concerns that cryptocurrencies are extremely risky due to their very high volatility and potential for pump and dump schemes. Regulators in several countries have warned against their use and some have taken concrete regulatory measures to dissuade users. As such, they may be shut down or seized by a government at any time. The more anonymous a currency is, the more attractive it is to criminals, regardless of the intentions of its creators.
In 1983, a research paper by David Chaum introduced the idea of digital cash. In 1990, he founded DigiCash, an electronic cash company, in Amsterdam to commercialize the ideas in his research. It filed for bankruptcy in 1998. E-gold was the first widely used Internet money, introduced in 1996, and grew to several million users before the US Government shut it down in 2008.
But Anwar Mohammed, PhD political science in Australia warned that “the introduction of a digital currency during a crisis could provide governments with frightening new powers. The role of the state could drastically change as nations shift towards a cashless society, which encourages central banks to adapt in order to maintain firm control over money supply.”