• The Bank of Canada released a staff discussion paper outlining the potential use of a central bank digital currency (CBDC) within the Canadian economy.
• The paper found that most Canadians have weak incentives to use a CBDC, as they don’t face barriers when accessing financial services like bank accounts or debit and credit cards.
• The paper suggested non-CBDC-related ways that could better help the underbanked including improving internet access, expanding low-cost bank account availability, increasing merchant collaboration with remote communities and continuing to supply cash.
Overview
The Bank of Canada recently published a staff discussion paper on the potential role of central bank digital currency (CBDC). It concluded that there were ‘weak incentives’ for Canadians to adopt a CBDC due to their easy access to existing financial services such as bank accounts and credit cards. To address this issue, it proposed several non-CBDC related solutions such as improving internet access and expanding low-cost banking options.
Reasons Why Canadians Have Weak Incentives To Use A CBDC
The discussion paper found that most Canadians have little trouble accessing financial services which gives them little reason to use a CBDC. 98% of people in Canada have a bank account, 87% have a credit card and 90% have access to high quality internet. Additionally, merchants are unlikely to accept it due to its potentially low uptake which further reduces its usefulness.
Barriers To Broad Adoption Of A CBDC
The paper noted that replacing cash with digital loonies would mean tech-averse Canadians would have fewer payment options while cash-dependent Canadians would be unable to make common payments. This could lead to problems with its broad acceptance as both users and merchants may face significant barriers if they try to adopt it.
Non-CBDC Solutions To Help Underbanked People
In order to better help those who are underbanked, the paper suggests several non-CBDC related solutions such as improving internet access, expanding low-cost banking options and increasing merchant collaboration with remote communities. Cash is also seen as essential as without it there would be no offline payments available for those who need them.
Conclusion
Overall the Bank of Canada’s staff discussion paper highlighted the fact that there are currently weak incentives for Canadians to adopt a CBDC due largely because most already have easy access