A recent report from the Bank of Canada highlights a central impediment to the adoption of central bank digital currencies (CBDCs) worldwide: interest among Canadians may not be as widespread as previously thought.
The report, “Unmet Payment Needs and a Central Bank Digital Currency,” explains that for a digital currency issued by the central bank to work well, consumers would need to use it frequently. That’s an important factor when it comes to merchant acceptance. When businesses offer such a payment method, consumers are more likely to frequently use it. In this case, widespread merchant acceptance would lead to increased use of the digital currency.
However, there’s an abundance of payment methods currently out there, particularly digital ones—and many consumers still heavily lean on cash when paying for purchases. Therefore it’s no surprise that many consumers in Canada are not very motivated to use CBDCs frequently, especially on a big scale. This lack of enthusiasm also means that businesses aren’t racing to widely accept this digital currency.
In the report, Bank of Canada is examining a “what if” situation. Essentially, what will happen if Canada becomes truly cashless—and would it be worth replacing cash with a digital equivalent? According to them, the answer is no.
Sentiment Around CBDCs
Canada is not alone in its skepticism of CBDCs. When asked about the Bank of England’s pursuit of a CBDC affectionately known as Britcoin, former BOE Governor Lord Mervyn King called it a “solution without a problem.”
Still, the idea of CBDCs is catching on worldwide, although only a few countries have actually implemented them. As of March 2023, 11 countries and territories have launched CBDCs—including the Bahamas, Antigua, St. Vincent and the Grenadines, Grenada, and Nigeria. It is striking that no large Western countries have launched a CBDC yet, though some are still largely in the exploratory stage.
CBDCs could decrease the cost of maintenance that a complex financial system requires, reduce cross-border transaction costs, and provide those who currently use alternative money-transfer methods with lower-cost options. They could also reduce the risks associated with using digital currencies or cryptocurrencies in their current form. But part of the draw of cryptocurrency is that it’s not controlled by government. Until the business case for CBDCs becomes clearer, it will be difficult for governments to justify the investment required to make them a reality.