After surveying all segments of the population on the possibility of issuing a digital currency, the Bank of Canada has come to the conclusion that further consultations are necessary before taking action.
“The Bank will continue its discussions with a wide range of stakeholders on the issues and characteristics that matter most to the population,” concludes a report published Wednesday by the Bank of Canada, which recalls that the decision to issue a digital currency will ultimately fall to Canadian elected officials.
A future Canadian digital currency would not require the disclosure of personal information and would not bear interest, the central bank said in response to concerns expressed to it since the start of its consultations in 2020.
This is because the appetite for a digital currency is quite limited in Canada. The possibility that the government could control people’s privacy with a central bank-backed digital currency is the most commonly expressed fear.
To address these concerns, the Bank of Canada suggests that it would not be mandatory to provide identification or disclose confidential information to be able to use digital dollars. Certain personal information, similar to that provided when opening a bank account, may be provided on a voluntary basis to recover lost or stolen funds.
People are using cash less and less, but they want to maintain access to bank notes whose value would continue to be guaranteed by the central bank, such as a possible digital currency.
Skeptical banks
Among the representatives of the financial sector surveyed, enthusiasm for a digital dollar guaranteed by the central bank is not very great either.
This lack of enthusiasm can be summed up as follows: we don’t need it because current payment options already meet the needs of Canadians.
Financial institutions fear above all for their survival. They are worried about seeing deposits and their income melt away, which would reduce their ability to lend money to households and businesses. They also fear an increase in the frequency of general panic movements where people rush to banks to withdraw their money and a destabilization of the financial system, because it would be simpler and faster to convert deposits into digital currency than in bank notes.
The Bank of Canada believes that some of the banks’ fears are unfounded. “To minimize the risk of the digital dollar replacing commercial bank deposits, the digital dollar would not generate interest,” she emphasizes. To grow their savings, households would therefore still benefit from continuing to deposit them in a financial institution.
Digital currency could also become a new vehicle for financial crimes such as money laundering and terrorist financing. In this regard, it will be necessary to find a balance between the protection of privacy and security, which will be the responsibility of elected officials, believes the Bank of Canada.
One of the reasons that most countries consider creating a central bank-backed currency is to include populations who do not have access to the banking system. One way to do this would be to allow the use of digital currency without necessarily having an internet connection, which could be an advantage in the event of an internet outage or power outage.
A fundamental trend
Most industrialized countries are exploring the possibility of issuing collateralized digital currency for a variety of reasons, including reducing the high transaction costs associated with issuing, handling and storing notes. Countries also want to maintain their monopoly on their currency while new payment systems, cryptocurrencies, become more widespread.
“Our responsibility is to ensure that Canada’s payments system is ready for the economy of the future,” said Carolyn Rogers, Senior Deputy Governor of the Bank of Canada, in tabling her report. People don’t use money like they used to. If they decide that a digital version of the Canadian dollar is needed, we have an obligation to be prepared to provide it to them. »
In Canada, cash payments are declining, but not disappearing. The most recent Bank of Canada survey, in 2021, indicates that only 3% of SMEs plan to no longer accept cash payments.
Quebec has the largest proportion of merchants who only accept cash, at 15%, and the lowest rate of acceptance of debit and credit cards in the country.