“There is still a long way to go in terms of increasing access, reducing costs, and making the system more efficient,” Hyun Song Shin, head of research at the BIS, said in a phone interview. “The cost of payments is still quite high considering the technology advances that we’ve made, and the cost is borne disproportionately by the unbanked or underbanked, and on small businesses.”

Recent government stimulus programs have shown just how clunky and inefficient payments are in some countries. The US issued paper stimulus checks and direct deposits to Americans, but some of that money got tangled up in a system of middlemen. The difficulties came at a time when some were counting on that money for essentials like buying food.

The BIS report adds to the discussion between the central banks about how to modernize the payments systems for the digital world. An earlier publication from the institution focused on financial stability: More than a dozen countries are either researching, piloting, or, like China, have ongoing work in place for central bank digital currencies. As physical cash becomes less prevalent, consumers are becoming more reliant on commercial intermediaries like banks and fintechs. In a financial panic, consumers may regret not having as much access to physical notes and coins.

Today’s BIS publication points out that a modernized payment system could also promote financial inclusion. Some, such as the elderly and other groups, rely on paper money for budgeting and may not be comfortable going online to handle their finances. The poor and minorities are much less likely to have bank accounts. Transferring and exchanging money from one currency to another tends to be more expensive for those who can least afford it. And while more people than ever have banking and transaction accounts, these services remain far from universal.


A central bank digital currency—a form of electronic cash issued directly from central banks to consumers—could, the thinking goes, reduce some costs and reach vulnerable parts of society. India’s unified payments interface (UPI) and its Aadhaar biometric identity systems have shown that a government utility for digital payments can quickly reach a large population. In the US, the Federal Reserve plans to overhaul its payment system to install FedNow, which would provide for real-time transactions between banks. Central banks can foster competition among commercial players while promoting interoperability between systems, the BIS wrote.

But promoting new forms of digital payments will have trade-offs. A central-bank digital currency could undermine the commercial banking system by facilitating bank runs. At the same time, the need for privacy and anonymity has to be balanced against worries of money laundering and illicit finance.

As cash becomes less popular, one way to protect disadvantaged groups is to protect existing system for physical money. In the UK, a country that’s going cashless faster than most, the government says it is committed to keeping the infrastructure for polymer notes and metal coins from collapsing. BIS research suggests that central bank digital currencies and a government utility for consumer transactions could also play a role. These efforts could make transactions cheaper, easier, and more accessible for everyone.

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