A recent publication by the Bank of Canada has underscored a key obstacle to the global adoption of central bank digital currencies (CBDCs): a notable lack of interest among Canadians.
The report titled “Unmet Payment Needs and a Central Bank Digital Currency” outlines a crucial factor in the successful implementation of a central bank-issued digital currency—it must see frequent and widespread use by consumers. This usage is pivotal for fostering merchant acceptance. Businesses are more likely to offer a payment method if consumers utilize it extensively. Hence, if merchants widely adopt a digital currency, its utilization among consumers would naturally rise.
However, the plethora of existing payment methods, especially digital ones, and the enduring preference for cash payments among many consumers has led to a situation where Canadians, as a whole, show limited motivation to extensively engage with CBDCs. The absence of strong enthusiasm on the consumer side translates into businesses hesitating to embrace the digital currency on a large scale.
The Bank of Canada’s report delves into a hypothetical scenario—contemplating what would occur if Canada transitioned into a cashless society and considered whether replacing cash with a digital equivalent would be a worthwhile endeavor. According to the Bank’s analysis, the answer tilts toward the negative.
Sentiment Surrounding CBDCs
Canada’s stance on CBDCs is not an isolated viewpoint. The skepticism toward CBDCs is shared elsewhere. In reference to the Bank of England’s pursuit of its own CBDC, often referred to colloquially as Britcoin, former Governor Lord Mervyn King dismissed it as a “solution without a problem.”
However, the concept of CBDCs is finding resonance worldwide, albeit only a handful of nations have actualized them. As of March 2023, a total of 11 countries and territories have successfully launched CBDCs. This includes entities such as the Bahamas, Antigua, St. Vincent and the Grenadines, Grenada, and Nigeria. It’s noteworthy that major Western nations have yet to roll out their own CBDCs; many of these countries are still in the exploratory phase.
CBDCs hold the potential to mitigate the maintenance costs associated with complex financial systems, reduce expenses linked to cross-border transactions, and offer cost-effective alternatives to individuals who presently rely on alternative methods for money transfers. Furthermore, CBDCs could address the risks inherent in the current iteration of digital currencies and cryptocurrencies. Nonetheless, a crucial attraction of cryptocurrencies lies in their detachment from government control. Until a more compelling rationale for CBDCs emerges, governments may struggle to justify the requisite investments to transform them into reality.
