While the globe is grappling with the possibility of Central Bank Digital Currencies (CBDCs), the Bank of Canada recently released a staff discussion paper shedding light on the potential hurdles that could limit their adoption. According to the study, Canadians have “weak incentives” to switch to a CBDC. The reason? Canada’s well-established financial system provides easy access to financial services.
A striking 98% of adults in Canada have a bank account, a whopping 87% possess a credit card, and high-quality internet is within reach for 90% of urban and rural households alike. These figures bolster the argument that substantial barriers do not exist when it comes to accessing basic financial services. The discussion paper raised the question – if the citizens are already well-banked and connected, what need do they have for a digital variation of their national currency?
The central bank also envisioned a scenario where cash was virtually eliminated. Here, they explored whether a CBDC could fill the gap, particularly for the underbanked. Ironically, the discussion paper noted that doing away with cash completely would leave the technologically-averse Canadians and the cash-dependent ones with fewer options for payment. While CBDCs were expected to address this issue, the wavering adoption could dissuade merchants from accepting them.
However, this does not mean that the bank is entirely pessimistic about the future of CBDCs. The paper acknowledged myriad reasons that could ignite an interest among Canadians to use the CBDC. Yet, it added that the barriers for both users and merchants to widely adopt a CBDC “appear to be significant.”
Adding to the intrigue, the paper also highlighted the essential role of cash. The authors pointed out that without cash, offline payment methods would cease to exist, particularly during emergencies such as extreme weather or widespread power outages. In essence, the authors argued for continuing to issue cash and provide cash accessibility. Paramount to this discussion is the fact that the Bank of Canada has underscored its commitment to keep cash in circulation as long as there’s demand.
Rather than advocating for CBDCs, the paper proposed alternative solutions to aid the underbanked, such as improving internet access, widening low-cost bank account availability, fostering collaboration between merchants and remote communities, and ensuring the provision of cash. All of this points to the complexity surrounding the adoption of a CBDC and begs further exploratory studies which would contribute to the mainstreaming of CBDCs all over the world.
Source: Cointelegraph
