A new paper from the Bank of Canada suggests that widespread acceptance of a central bank digital currency could face challenges due to the limited incentives for the average Canadian to adopt it.
A recently released staff discussion paper by the central bank on August 10 explores a hypothetical situation in which cash becomes nearly obsolete, aiming to understand the potential role of a central bank digital currency (CBDC) in assisting the underbanked population.
The study revealed that the majority of consumers would exhibit "limited motivation" to adopt a central bank digital currency, as Canadians generally do not encounter significant obstacles in accessing financial services such as bank accounts or debit and credit cards.
According to the report, a striking 98% of Canadian adults possess a bank account, while 87% are credit card holders, and a significant 90% of households, both rural and urban, have access to high-quality internet. However, the study pointed out that transitioning from physical cash to digital currency would result in reduced payment options for individuals less comfortable with technology, while those heavily reliant on cash would face challenges in making commonplace payments.
Projected limited adoption of a CBDC could also discourage merchants from accepting it, further reducing its utility. Instead, the study proposed alternative strategies unrelated to CBDCs that could more effectively assist the underbanked. These strategies include enhancing internet accessibility, widening the availability of low-cost bank accounts, fostering collaboration between merchants and remote communities, and maintaining the provision of physical cash.
In the document, it was emphasized that there weren’t any definitive predictions about how Canadians would respond to a CBDC, acknowledging that there could be various factors driving interest in its usage. However, even if interest were to be higher than initially projected, the paper noted that substantial hurdles for both users and merchants to widely embrace a CBDC "seem to be substantial."
The paper also strongly highlighted the importance of cash, recognizing that its absence would leave no offline payment options during critical situations like extreme weather events or widespread power failures.
It indicated the potential comprehensive advantages of promoting offline-capable digital payment advancements, underscoring the significance of maintaining both digital and cash-based options. It elaborated that this situation underscores the necessity for the Bank of Canada to persist in issuing physical currency and ensuring access to cash.
Highlighting that the central bank had previously declared its commitment to providing physical currency as long as there was demand. It also pointed out that a central bank digital currency (CBDC) would only be introduced if a cashless society emerged or if foreign CBDCs or cryptocurrencies like Bitcoin gained widespread usage.