Bank of Canada’s Paper: Central Bank Digital Currency Faces Hurdles in Adoption

The prospect of a central bank-issued digital currency (CBDC) finding its place in the wallets of everyday Canadians could be a challenging endeavor, as per a recently published paper by the Bank of Canada. The paper, released on August 10th, delved into the hypothetical realm of a cashless society to explore the viability of a CBDC’s role in addressing the needs of the underbanked.

In this simulation, the central bank explored a scenario where traditional cash virtually vanishes, opening doors for a potential CBDC to step in and fill the void. However, the study reveals that most Canadians would exhibit “weak incentives” to embrace a CBDC. Unlike regions with barriers to financial services, Canada boasts robust access to banking services and digital payment options. Notably, 98% of Canadian adults possess bank accounts, 87% hold credit cards, and 90% of urban and rural households enjoy high-quality internet connectivity.

However, the implications of a CBDC replacing physical currency could yield unintended consequences. On the one hand, individuals less comfortable with technology might find themselves with limited payment options. On the other hand, individuals who heavily rely on cash for transactions might need help navigating a landscape without it.

This apprehension towards CBDC adoption could have a ripple effect, extending to merchants who might be disinclined to accept a form of payment that lacks widespread user support. The limited enthusiasm among consumers and merchants potentially undermines the practicality of a CBDC.

Instead of focusing on CBDC adoption, the paper suggested alternative approaches to assist the underbanked. These include enhancing internet access, broadening the availability of low-cost bank accounts, fostering collaboration between merchants and remote communities, and maintaining the supply of cash as a viable option.

While the paper acknowledged that its analysis wasn’t a definitive predictor of Canadian behaviour toward a CBDC, it highlighted that the barriers to its widespread acceptance seemed significant. The importance of preserving the role of cash, especially in emergencies like extreme weather or power outages, also gained prominence in the paper’s narrative.

The paper reinforced the Bank of Canada’s commitment to providing cash as long as there’s demand. It clarified that the issuance of a CBDC would be contingent on the emergence of a cashless society or the prevalent use of foreign CBDCs or cryptocurrencies like Bitcoin.

In essence, the Bank of Canada’s paper signals that while the allure of a CBDC might not be strong among most Canadians, maintaining cash accessibility remains integral. The study underlines the need for a multifaceted approach to addressing the needs of the underbanked and navigating the future of digital payments.