Risks and benefits
A digital dollar would not replace the paper dollar, but it would allow all day-to-day transactions without the requirement of having an account in a commercial bank and depositing money there. And by avoiding the sometimes hidden and often exorbitant transaction fees.
“I understand the banks to worry because we touch their sandbox,” said Annie Lecompte, professor in the department of accounting sciences at the University of Quebec in Montreal.
Banks refer questions about digital currency to the group that defends their interests, the Canadian Bankers Association (CBA). It believes that a digital dollar has the ability to destabilize the financial system by reducing the funding capacity of banks.
“We are of the view that the potential benefits of issuing a retail central bank digital currency and the objectives behind such issuance must be clear and above all in line with the glow of the risks to which the balance of the financial sector will be exposed. , for example the possible repercussions on the financing of banks”, sums up the ABC.
Bankers also believe that the digital dollar would pose privacy issues and is not needed because people are happy with how the current system works.
A loss of income
Commercial banks generate profits with the loans they grant. To grant these loans, they must have liquidity. Much of this comes, cheaply, from the money deposited in trading accounts and the fees they impose on transactions.
As such, it is clear that they could see their income decrease, says David Dupuis, economist and professor at the University of Sherbrooke.
“A digital dollar is a direct highway between the customer and the central bank, which does not pass through the intermediaries that are the banks, he explains. This limits their ability to finance themselves at a lower cost. »
The objective of central banks considering issuing a digital currency is to offer a payment solution that is safe, fast and less expensive than those that already exist, i.e. payment in cash and by debit or credit card or by phone.
In the short term, banks should not worry too much about their profits, according to Annie Lecompte. On the one hand, Canadian banks are strong and extremely profitable. And on the other hand, the central bank has no intention of replacing commercial banks.
In all likelihood, the digital currency will not earn interest and will only be used for transactions, she said. To invest savings or take out a loan, commercial banks will still be needed.
Ultimately, “the impact for banks will depend on the popularity of this new payment option. Not everyone will adopt it”.
Confidentiality and security: a necessity
To be widely adopted, the Bank of Canada’s digital currency will need to be trusted by users. This is the essential condition, believes Chantal Bernier, a lawyer specializing in the protection of privacy and personal information and former Privacy Commissioner of Canada.
There are both risks to digital currency that could reduce privacy and benefits that could increase it, she said.
The blockchain technology that makes it possible to issue digital currencies has an advantage, that of traceability, explains Chantal Bernier. “It can provide greater protection against money laundering, fraud or tax avoidance. »
Conversely, it is a new power for the Bank of Canada “which must be framed and accompanied by regulations that correspond to our governance of rights”, she underlines.
The technological risks are also to be considered, according to the expert, because the concentration of information on the transactions carried out will create “a warehouse of extremely attractive personal data” for potential hackers.
Chantal Bernier believes it is possible to strike the necessary balance between risk and reward to ensure the viability of digital currency. But she understands central banks to exercise caution before issuing their digital currency. “Beyond privacy, there are financial considerations and market considerations to take into account,” she posits.
Keep control
With a digital dollar, the Bank of Canada says it wants to offer one more means of payment and an alternative to bitcoin and other private cryptocurrencies which do not offer stability or guarantees to their users and which are still increasingly popular.
In fact, the main objective of central banks is to keep control of money and monetary policy, says David Dupuis.
It is Facebook’s intention to launch its digital currency that has sounded the alarm clock for central banks around the world and accelerated plans to issue national digital currencies.
With its more than 2 billion users, Facebook and its currency had the power to destabilize the international financial system and send it out of control, which is why regulators clipped its wings.
The fear that a private currency will take up more and more space is what motivates central banks to issue their digital currency. If you no longer control the tool with which you manage monetary policy, you cannot conduct monetary policy.
David Dupuis, economist and professor at the University of Sherbrooke
The exclusive right to issue currency is too profitable and too important for the sovereignty of countries and central banks will never share this right, even partially, according to the specialist.
Central bank digital currency should therefore sooner or later become a reality in most countries, he predicts. “It’s disruptive technology, which has the potential to destabilize the financial system, and there’s no sane central bank that’s going to want to destabilize the financial system. »
Myths and reality
Digital currency already exists
No. It is true that cash is used less and less and that three quarters of transactions are made in digital form in Canada, by debit card, credit card or by money transfer.
These exchanges involve the transfer of money from the buyer to the seller using intermediaries and significant costs, most often hidden. These intermediaries are banks and entities like Interac and credit card issuers like Visa and Mastercard. Digital currency would increase the speed of transactions and reduce the cost.
Digital currency will put us at the mercy of the state
This is one of the main concerns associated with a digital currency issued and guaranteed by a central bank like the Bank of Canada. A central bank digital currency could not offer the same anonymity as cash, which can be traded without trace, or private cryptocurrencies like bitcoin. To prevent money laundering and criminal activity, the central bank should require certain personal information, as banks subject to criminal activity regulations already do. The level of privacy of digital currency would be comparable to that of all other electronic transactions.
Digital currency is another cryptocurrency, like bitcoin
Like bitcoin and other cryptocurrencies, a digital dollar would use blockchain technology. But unlike bitcoin, which allows anonymous transactions, whose value fluctuates wildly and which is managed by no one, a digital dollar would have the same value as the paper dollar guaranteed by the Bank of Canada, which would manage the system with l purpose of preventing fraud.
Cryptocurrencies like bitcoin are not currencies strictly speaking, since the number of transactions they allow to make is limited.
Digital currency will replace cash
No. In Canada, cash is out of the question. The digital dollar would be a payment option that would be added to those that already exist. Even though transactions are increasingly done in digital form, cash is still considered indispensable by the population. According to surveys conducted by the Bank of Canada on a regular basis, 80% of Canadians believe that cash should continue to exist, a proportion that remains stable year after year.
Digital currency will destabilize the financial system
Digital currency could have an impact on the profitability of banks, but its objective is on the contrary to maintain the stability of the financial system taken as a whole. In fact, central banks fear that a digital currency, private like bitcoin or public like one issued by another country, will become popular enough to threaten the country’s monetary sovereignty and financial stability. Hence the project to offer a national, safe and guaranteed alternative to this method of payment, which is set to become widespread.
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- 60.7 billion
- Profits of the six Canadian banks and Desjardins in 2022