Getting funds to those in need and enabling access to money during COVID-19, part 3: Central bank digital currencies and other instruments

Biagio Bossone, Harish Natarajan 15 July 2020



The economic effects of the Covid-19 pandemic are leading to unprecedented recessions across the world. We hope the health impact of the pandemic will be temporary, but its economic impact may not be. Governments and central banks worldwide are fighting hard to limit the damage through massive provision of liquidity to financial and non-financial entities and distribution of various forms of fiscal support to people and businesses.

Yet, as public authorities respond to the crisis, they are encountering significant challenges. Often, the complexity of public funding programs raises uncertainty and slows down the speed at which businesses and citizens receive the money. In various countries, small and medium-sized enterprises express concerns that relief payments are taking too long (OECD 2020). Failure to address these challenges aggravates the macroeconomic effects of the crisis and diminishes the ability to weather them. There is risk that persistence of these challenges could contribute to social upheaval.

Governments must find ways of getting money to people and businesses more rapidly. Some have noted that a general-purpose central bank digital currency (CBDC) could play a special role in this context (see below).1 The pandemic will likely accelerate CBDC developments, such as the ‘digital dollar’ discussed below, by amplifying calls to endorse its role and clearing the political way toward its introduction (Auer et al. 2020).2 Still, CBDC projects will take time to materialise, and other instruments will be needed in the meantime. Both issues are discussed below.  

CBDC as money channel to the ‘common man’

As Covid-19 unfolds, many governments are considering direct financial transfers to households and small businesses beyond traditional social protection mechanisms. In many developing countries, the scale of these payments is unprecedented. In Argentina, Pakistan, and Peru, for instance, new programs cover one-third of their populations, and in the Philippines, more than 70% of households receive emergency transfers (Rutkowski et al. 2020). During emergencies, a central bank could agree to act as a government agent and execute CBDC fund transfers on the government’s behalf to individuals and businesses. Through CBDC, governments could send direct payments much more rapidly than through checks or tax refunds and could provide geographically and temporally targeted relief.

The CBDC supporting infrastructure would also enable fund receivers to make payments and transfers seamlessly to other CBDC holders and/or non-CBDC holders, anywhere and anytime across the economy. CBDC could reinforce the resilience of a country’s retail payment services, especially in those cases where private sector infrastructures are disrupted, due to technical problems, personnel unavailability, or inability of service providers to operate. The ‘programmability’ of CBDC has also been noted, which could be used to monitor and control how, when, and where recipients utilise the funds (PwC 2019). Finally, CBDC could enable people to substitute for cash and in-person payment methods when social distancing is required, or if the use of cash plummets as people worry about germs.3

CBDC and helicopter money

Evoking Milton Friedman’s incisive image of ‘helicopter money’, CBDC could be used during crises as way to deliver stimulus packages to households and businesses.4 This would be especially useful when businesses are at risk of closing because they run out of money, or if people lose jobs, or become ill, and also run out of money. An example is the recent proposal for a US House emergency Covid-19 stimulus bill, which referred to creating a ‘digital dollar’ to get stimulus payments to unbanked Americans.5 In practice, the US Treasury would make payments through direct deposits to recipient accounts (FedAccounts) held at Federal Reserve Banks (FRBs) or FRB-member banks through pass-through FedAccounts.6

Whether the ‘helicopter drops’ of money are ultimately financed from the government budget or by the central bank via money creation is a financial policy decision. This decision should be country-specific and involve consideration of policy coordination between the government and central bank. In any case, such considerations transcend the payment aspects of crisis management, which is to identify best ways to get funds to those in need and to enable access to money. From this standpoint, what matters is whether CBDC as a conduit for ‘helicopter money’ provides an efficient and effective means to relieve hardship and to raise aggregate demand.

Still, there is a relevant consideration between using CBDC for aggregate demand stimulus or for giving emergency cash to distressed households and businesses. If the primary purpose of cash transfers is to raise aggregate demand, it is not critically important if some people do not get the money. What matters is that CBDC reaches a majority of people and businesses that spend the money and stimulate demand. However, if the primary purpose is to relieve hardship, then it matters if the money doesn’t reach the right people and enterprises, since hardship would not be effectively relieved and the scheme would be seen as unfair (Coppola 2020). Specifically, addressing this issue would require that CBDC be non-anonymous, so that the identity of CBDC-holders can be used to target transfers correctly and to monitor their effectiveness.

Failures in this area might pose reputational and political risks for central banks. Thus, if a CBDC were to be used for relief purposes, responsibilities should be set to establish clearly that the central bank acts as the agent of government and only executes government instructions. The central bank should participate in discussions as to whom or which entities should be entitled to receive money, only to the extent that restricting the distribution of money would affect its own mandate.

It is possible that CBDC might not reach all of those who could be in need during crises. Individuals and businesses must be identified and not everyone has ID, especially in economies with a large informal sector. Furthermore, setting up a CBDC scheme, the underlying payment system for CBDC-based payments and transfers, develop the acceptance of CBDC amongst merchants and businesses, and making all of it work, requires time.

Other instruments

In the meantime, existing infrastructures could be improved to facilitate transfers and payments. Possible improvements include:

  • Fast payments: Many jurisdictions have deployed or are currently developing ‘fast payment’ services for low-value transfers between individuals, businesses, and public agencies. These are payments in which the transmission of the payment message and the availability of final funds to the payee occur in real time (or close to it) on as close as possible to a 24-hour, seven-day basis (CPMI 2016). National payment systems with a broad base of payment service providers (PSPs) are well-positioned to offer wide and potentially universal coverage for fast payment services. The interest of central banks and the payments industry on this type of retail services has been on the rise over the last decade worldwide, and the demand for them has taken on a new urgency since the eruption of Covid-19 (Jones 2020).  
  • Digital ID: Government agencies and PSPs must be able to access the identity information of transfer beneficiaries and customers, respectively. A legally recognised and unique digital ID system authenticates personal identity, ensuring its uniqueness, and thereby meeting basic Customer Due Diligence (CDD) requirements. A digital ID system that covers all country resident individuals and legal persons would enormously support transfers and payments during crises.
  • Interface mechanisms: These mechanisms connect payment infrastructures with government financial information management systems and allow for use of unified identifier facilities that bridge between individuals and businesses as payment system users on one side, and as entries in government systems such as social insurance or tax records, on the other. An example is Ecuador’s switch platform that connects PSPs with a database containing ID information of beneficiaries and subsidy amounts, which validates ID information when benefits are collected in person. Another example, from Colombia, is the mechanism that associates potential beneficiaries with mobile phone numbers, identifies the type of connectivity that beneficiaries have on their device (e.g. 4G, 3G, 2G), and handles relationship with customers differently depending on the technology they use.7
  • Social registries: Integration of government information systems with social registries enables governments to better achieve outreach, intake, registration, and determination of potential eligibility for social programs, eliminating duplication of processes, reducing inefficiencies, avoiding fragmentation, and supporting coordination in social policy (Leite et al. 2017). The data produced by social registries can be used for calculating benefit levels, validating information collected through other methods or sources, assessing potential demand for interventions, planning and costing interventions depending on projected coverage rates, monitoring and evaluation, or other analytics purposes, thereby adding to the facilitation of benefit transfers, especially during crises.

Modernising Government-to-Person (G2P) payments has been a long-term priority for the World Bank Group, even before the crisis. World Bank teams working on social protection, payment systems, financial sector, governance, and digital development regularly address this priority with country clients, most recently with the support of partners such as the UK’s Department for International Development (DFID), Switzerland’s State Secretariat for Economic Affairs (SECO), and the Bill and Melinda Gates Foundation. World Bank teams are now actively supporting country authorities in adapting quickly to ensure that government social protection programs can address the new reality emerging from the pandemic and put in place the building blocks for an efficient G2P payment ecosystem.


Auer, R, G Cornelli and J Fros (2020), “Covid-19, cash, and the future of payments”, BIS Bulletin No 3, Bank for International Settlements, Basel, 3 April.

BIS (2018), Central bank digital currencies, report by the Committee on Payments and Market Infrastructures Markets Committee, Bank for International Settlements, Basel, March.

Boar, C, H Holden and A Wadsworth (2020), “Impending arrival – a sequel to the survey on central bank digital currency”, BIS Papers No 107, 23 January.

Coppola, F (2020), “Doing "Whatever It Takes”, Coppola Comment, 27 April.

CPMI (2016), Fast payments – Enhancing the speed and availability of retail payments, report by the Committee on Payments and Market Infrastructures, Bank for International Settlements, Basel, November. 

Falempin, L (2020), “What Does COVID-19 Mean for Central Bank Digital Currencies (CBDCs)?”, Tokeny Solutions, 14 May.

Friedman, M (1969), “The Optimum Quantity of Money”, in M Friedman, The Optimum Quantity of Money and Other Essays, Chicago: Adline Publishing Company, pp. 1-50.

Grenville, S (2013), “Helicopter money”,, 24 February.

Jones, D (2020), “Demand for real-time payments rises amid COVID-19 pressure”, Mobile Payments Today, 7 April.

Leite, P, T G Karippacheril, C Sun, T Jones and K Lindert (2017), “Social Registries for Social Assistance and Beyond: A Guidance Note & Assessment Tool”, Social Protection & Labor, Discussion Paper No.1704, The World Bank, July.

OECD (2020), SME Policy Responses, Tackling Coronavirus (Covid-19)—Contributing to a Global Effort, Organisation for Economic Co-operation and Development, Paris.

PwC (2019), The Rise of Central Bank Digital Currencies (CBDCs): What you need to know, November.

Rutkowski, M, A Garcia Mora, G L Bull, B Guermazi and C Grown (2020), “Responding to crisis with digital payments for social protection: Short-term measures with long-term benefits”, World Bank Blog, 31 March


1 See, for instance, Falempin (2020). CBDC is a central bank liability handled through electronic means, serving both as medium of exchange and store of value, and accessible to the broad public (BIS 2018).

2 See also “Will Covid-19 accelerate the arrival of digital currencies?”, ING, 22 April 2020. For an update on CBDC initiatives, see the BIS survey published last January (Boar et al. 2020).

3 In the UK, during the pandemic, cash and ATM usage have dropped by 50% over just a few days in March. Even in Germany, where cash is more popular than in neighbouring countries, there has been a recent surge in contactless payments and locals now use debit cards for their grocery shopping. See Asia Times, “How Covid-19 could accelerate CBDC adoption”, 11 April 2020. Scientific evidence suggests that the probability of transmission via banknotes is low when compared with other frequently touched objects, such as credit card terminals or PIN pads (yet it is obviously higher than contactless payment instruments). To bolster trust in cash, central banks are engaged in active communication campaign urging continued acceptance of cash and, in some case, they sterilise or quarantine banknotes. See Auer et al. (2020).

4 The expression ‘helicopter money’ was first coined by Milton Friedman (1969) when he wrote about the parable of dropping money from a helicopter to indicate a large economic stimulus through the issuance and distribution of money directly to people. According to Grenville (2013), the image of the central-bank helicopter dropping currency onto the eager public below is misleading: only governments can give away either cash or, more realistically, cheques, and – as he argues – this is fiscal policy, not monetary policy, while central banks have no mandate to give money away (they can only exchange one asset for another, as they do in quantitative easing). Decisions like this are backed by the usual budget-approval process. Thus, Grenville concludes, it is a government helicopter that does the drop, and it is called fiscal policy.

5 See “Making emergency supplemental appropriations for the fiscal year ending September 30, 2020, and for other purposes”, 116th Congress, 2D Session. The proposal was ultimately pulled from the final legislation but is now the subject of a dedicated Senate draft bill. See “To require member banks to maintain pass-through digital dollar wallets for certain persons, and for other purposes”, 116th Congress, 2D Session.

6 Pass-through FedAccounts would entitle individual wallet holders to a pro-rata share of a pooled reserve balance held in master accounts at FRBs. Each bank would set up a separate legal entity for the sole purpose of holding all assets (exclusively central bank reserves) and maintaining all liabilities associated with pass-through FedAccounts. Digital dollars would be remunerated at an interest rate that is the greater of the interest rate on required reserves and that on excess reserves.

7 The transfer transaction takes place in two modalities, depending on whether beneficiaries have or do not have an active account. In the former case, they are notified through an SMS that they will receive a transfer. In the latter case, if beneficiaries hold 4G and 3G, they are notified through an SMS and a link is provided to download an app so that can open an account on a mobile wallet (OTP can be obtained to cash-out at ATMs and agents). If beneficiaries hold 2G, they are notified through an SMS and open account (OTP also available).



Topics:  Covid-19 Development Financial regulation and banking

Tags:  coronavirus, COVID-19, central bank digital currency, helicopter money, payments systems

Senior Adviser Finance, Competitiveness and Innovation Global Practice World Bank

Lead Financial Sector Specialist in the Finance, Competitiveness and Innovation Global Practice, World Bank


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