The Investigation by the Bank of Canada
An investigation conducted by the Bank of Canada (BoC) has found that the average Canadian sees little reason to adopt a central bank digital currency (CBDC), which could lead to problems with such a product being broadly accepted should the central bank ultimately decide to release a digital loonie.
The main focus of the investigation was on the scenario where ‘the emergence of a cashless society’ could warrant the introduction of a general-purpose, cash-like CBDC in Canada. In the event that a cashless society emerges, the BoC determined that ‘most people, represented by the typical consumer and early adopters, would continue to have their usual payment needs met without cash by using various electronic methods’ including digital and mobile wallets. ‘Technology-averse consumers would have access to fewer payment methods in a cashless environment but could continue to transact using debit and credit cards as well as cheques.’
The BoC made a point to stress that it is ‘committed to supplying cash as long as demand for it remains’ and ‘will not unilaterally stop supplying bank notes.’ ‘If the volume of cash transactions were to fall to a significantly low level, it would not be because of the Bank’s decisions,’ the BoC said. ‘It would result from the cumulative behavior of most consumers, merchants, and cash distributors (such as banks and other operators of ABMs) moving away from cash.’
The Inclusion of Unbanked Consumers
In the scenario where the BoC issues a CBDC focused on providing payment services in a cashless environment, the bank determined that ‘A universally accessible CBDC that facilitated online purchases could benefit cash-dependent consumers,’ especially those who are unbanked, as long as ‘their access to CBDC did not require a bank account.’
‘Currently, most Canadian consumers do not experience gaps in their access to payment methods, and this will likely remain the case in a cashless environment,’ the BoC said. ‘Some people could, however, face difficulties making payments if cash were no longer widely accepted as a method of payment.’
The report said that 98% of Canadian adults have a bank account, 87% have a credit card, and 90% of rural and urban households combined can access high-quality internet. In order for a CBDC to serve as a cash replacement in a cashless society, it ‘would need to be widely adopted and used at scale by the dominant consumer groups who face few gaps in meeting their payment needs,’ they said. ‘Such adoption and use would be necessary to motivate merchant acceptance, which, in turn, would encourage further consumer use and merchant acceptance.’
‘However, the dominant consumer groups in this analysis may have relatively weak incentives for adopting and using a CBDC, so achieving widespread merchant acceptance could be challenging,’ the BoC added. ‘As a practical matter, achieving wide adoption, acceptance, and use of CBDC could be challenging because most Canadians have access to several methods of payment using commercial bank money, provided by sophisticated incumbents,’ the BoC said. ‘Overcoming such barriers could require significant and sustained investment by the central bank.’
Other Developments in Canada
In other blockchain news out of Canada, the Royal Canadian Mounted Police (RCMP) and Shared Services Canada (SSC) announced they are looking to develop a digital asset solution ‘to facilitate the seizure and storage of cryptocurrency and non-fungible tokens (NFTs) from multiple public blockchains.’
‘The development of a centralized repository solution would allow police officers to seize these assets in a user-friendly manner while also offering significant security to prevent the theft of said assets during their storage,’ they added.
The RCMP listed 17 requirements that would be needed for such a repository, including the ability to process transactions for the top 20 cryptocurrency blockchains by market capitalization and the ability to scale to support new blockchains and NFTs in the future. The proposed solution should also ‘Allow officers to query a public blockchain address and view balances and transactions; Present officers with clear instructions on how to seize assets through a step-by-step guide in the application; and Be able to accept and process transactions for the top 100 cryptocurrency blockchains by market capitalization,’ RCMP said.
The RCMP is inviting submissions for the development of this solution and offers funding of up to CAD$150,000 for Phase 1 and up to CAD$1 million for Phase 2. The goal is to have a centralized repository that meets the needs of Canadian law enforcement while also leveraging the innovation and expertise of the private sector.