According to a new Bank of Canada paper, the average Canadian has little reason to adopt a central bank-issued digital currency, which could hinder its widespread acceptance.
In the staff discussion paper released on August 10, the central bank examined a hypothetical scenario in which currency was virtually eliminated to determine the potential role of a CBDC in assisting the underbanked.
Canada’s CBDC struggles to take off
According to a Bank of Canada research paper, most consumers would have “weak incentives” to use one because Canadians do not encounter significant barriers to financial services such as bank accounts or credit cards.
The paper states that 98% of Canadian adults have a bank account, 87% also have a credit card, and 90% of rural and urban households have access to high-quality internet.
It was discovered that replacing currency with digital loonies would reduce payment options for tech-averse Canadians, while cash-dependent Canadians would be unable to make the most common payments.
The prospective low uptake of CBDCs would also discourage merchants from accepting them, further diminishing their utility.
Instead, the paper proposed non-CBDC-related strategies that could be more effective in assisting the unbanked in Canada, such as enhancing internet access, expanding the availability of low-cost bank accounts, increasing merchant collaboration with remote communities, and continuing to provide currency.
The paper emphasized that it was unable to predict how Canadians would respond to a CBDC and suggested that more people may be interested in using it for various reasons.
Even if there was a higher level of interest than the paper indicated, the barriers for users and merchants to widely implement a CBDC “appear to be significant,” the paper states.
Canada still prefers cash
The paper also emphasized the importance of cash in Canada, noting that without cash, there would be no offline payment methods available in emergency situations such as severe weather or extensive power outages.
This suggests the potential system-wide benefits of encouraging digital payment innovations that can function offline as well as the importance of sustaining cash.
Bank of Canada
The paper asserted that such a scenario demonstrated the significance of the Bank of Canada continuing to issue and provide access to currency.
The paper noted that the central bank had previously stated that it would continue to supply cash as long as it was in demand and that a CBDC would be issued only upon the advent of a cashless society or the pervasive use of foreign CBDCs or cryptocurrencies like Bitcoin.
CBDC Canada – What is it, and how does it work
A CBDC is a digital currency issued by a country’s central bank. A CBDC would be issued by the Bank of Canada in Canada. A Canadian CBDC would be the digital equivalent of Canadian paper currency. It would provide the same benefits and value as currency.
If a digital Canadian dollar were introduced, it would be supported by the Canadian government and governed by the Bank. Since a Canadian CBDC would have the same value as a regular Canadian dollar, significant value fluctuations will not be dangerous.
CBDC does not exist in Canada at present. In May 2023, the Canadian Bank initiated public consultations on a Canadian digital currency. Over 85,000 Canadians provided feedback on their requirements and expectations as part of the conversation.
As Canada’s central bank, the Bank of Canada must remain abreast of global consumer trends. During the COVID-19 pandemic, for instance, the Bank observed a change in how businesses and consumers conducted transactions.
Many individuals have adopted contactless payment methods, such as debit and credit card swipe technology. This accelerated the Bank of Canada’s decision to consider the creation of a digital currency as an alternative to assure Canadians’ participation in the future global economy.
Moreover, if cash were to lose widespread acceptability, the Bank of Canada would need to implement a digital currency. It may also contemplate establishing a centralized, low-cost, stable, and accessible banking system with a digital transaction network that enables all market participants.
