In mid-January, the Royal Canadian Mintannounced that it would begin closed beta testing of MintChip, its digital currency that has been in developmentsince 2012. According to the Mint, the digital currency willeventually provide consumers a secure, private, and timely means ofpaying for low-cost transactions.
The MintChip announcement comes at a pivotal point for digitalcurrencies around the world. The rapid increase in the globalpopularity of rival digital currency Bitcoin has left regulatorsfrom Malaysia to Singapore to Norway scrambling to determine themost effective means of regulating digital currencies. Somecountries, such as Germany, have announced they will treat thecurrency as an asset and thus taxable under their national taxcodes, while others, like China, are simply prohibiting influentialdomestic payment industry participants from accepting or processingBitcoin transactions. India has yet to determine its approachto regulating Bitcoin, but the Reserve Bank of India has made itclear that consumers approach and use bitcoins at their own riskand without any consumer safeguards.
Unlike bitcoins and other international digital currencies,MintChip maintains an unparalleled level of legitimacy. Since thecurrency is backed by the full faith and standing of the CanadianGovernment, consumers, retailers, and financial institutions cansafely accept and use MintChip with the knowledge that its valuewill not dramatically shift overnight and that regulatoryintervention is unlikely. The significance of this added legitimacyshould not be understated and it greatly improves the likelihoodthat the currency will develop a broad base of participatingmembers when it is eventually rolled out nationwide. This isfurther evidenced by the announcement that an Ingenico terminal(the IWL 220) has already been enabled to accept MintChip.
However, it is worth noting that unlike Bitcoin and other digitalcurrencies, MintChip has a physical component (the “chip”) that isrequired to facilitate a transaction (something that Bitcoin doesnot have to deal with). As a result, unless terminals are upgradedor are already capable of handling the currency, MintChip willstruggle to gain traction among consumers and other participatingusers.
While it will take time to unfold, the issue of ensuring thatcompliant terminals are in place could slow the deployment of thecurrency across Canada. Nonetheless, MintChip’s potential successcould in turn develop into a blueprint for other national digitalcurrencies around the world to replicate. Although replicationglobally depend on MintChip’s potential success, its announcementhighlights that governments are seriously considering digitalcurrencies as a viable payment method for low-costtransactions.
Traditionally, low-cost transactions have been dominated by theconsumer use of cash. This continues to be the case, as evidencedby 79% of consumers reporting that cash was most convenient forsmall-ticket items in Mercator Advisory Group’s 2013CustomerMonitor Survey Series, an online survey of 3,000 adults inUnited States on a range of payment topics. (For more informationon consumer cash use in the United States as well as other consumerpayment topics, see Mercator Advisory Group’s CustomerMonitorSurvey Series library and Insight Report titled Consumers and Debit 2013: A Shift to AlternativePayments, released in December 2013. As a result, MintChipmay not only be adding legitimacy to digital currencies today butmay be a glimpse at the long-term future of cash.
Follow Tristan on Twitter @THugoWebb.