Canadians wary of a central bank digital currency received both a temporary reprieve and a harbinger of concern in a Bank of Canada report.
Unmet Payment Needs And A Central Bank Digital Currency (CBDC), released earlier this month by the Bank of Canada (BoC), said the concept could only work if consumers “drive its use.”
The problem is, consumers don’t want it, so merchants don’t either. Yet, it sure seems the bank wants to.
There’s reason to doubt the BoC’s exploration of a CBDC is a “contingency plan” as they stated in 2021. A year prior, the Bank of International Settlements, the BoC, and six other central banks agreed on foundational principles and core features for a CBDC. No, this is their idea, not the public’s.
The bank’s own 2020 Cash Alternative Survey showed only five percent of merchants wouldn’t take cash, yet the Unmet Needs report states that even in a “cashless environment,” most Canadians would not “experience gaps in their access to a range of payment methods.” No need, no want, and what’s this about a “cashless environment”?
Alas, the six authors of the Unmet Needs report are in a strange place. It seems they were given the impossible task of trying to frame a CBDC as meeting a real need, while continually having to admit there is no appetite for it.
The report says, for example, that 13 percent of Canadians have owned bitcoin, but and other crypto instruments are “even less significant” in their ownership, let alone use. Only 14 percent of Canadians avoid using cash altogether, yet even “half of these people still carry some cash presumably as a precaution.”
Meanwhile, 98 percent of Canadians have a bank account and debit card and 87 percent own at least one credit card. Most people have two, and the whole system is working for them. Meanwhile, 11 percent of Canadians with internet access won’t bank online, and 16 percent don’t shop online.
Because they “dislike using technology and are therefore reluctant.”
With no need and no want, what’s a central bank to do?
“Achieving wide adoption, acceptance and use of a central bank digital currency could be challenging because most Canadians have access to several methods of payment,” the report says.
“Overcoming such barriers could require significant and sustained investment by the central bank.”
Canadians have been given good cause to be wary of banks. The Parliamentary committee looking into use of the Emergencies Act found over 200 participants and donors had $8 million of accounts frozen. According to MP Mark Strahl, a single mom working a minimum wage job was barred access to her account for donating $50 to the cause.
Examples in the United States also illustrate the potential problem, JPMorgan Chase Bank deplatformed the National Committee for Religious Freedom three weeks after opening a bank with the firm, after refusing to disclose a list of its donors. A credit card processor owned by Chase terminated the account of Family Council, an organization that advances traditional family values. Meanwhile WePay, also owned by Chase, refused to serve Defense of Liberty, a political action committee based in Missouri.
As a result, 19 Republican state attorneys general asked JPMorgan Chase to participate in the Viewpoint Diversity Score Index, an initiative by the Alliance Defending Freedom, to evaluate their commitment to religious liberty and freedom of speech. The attorneys told the bank by letter they scored just 15 out of 100 for “unclear or imprecise policies” that allow the bank to “deny service for arbitrary or politically biased reasons.”
Imagine, if instead of a commercial or investment bank, it was a central bank doing all of this through a digital currency in a “cashless environment.” What would keep a Western country from becoming like authoritarian China where a social credit system overlaps a financial one? Those who oppose diversity, inclusion and equity (DIE) could find their access to financial tools hindered if not abolished.
Nevertheless, the Unmet Needs report goes on with its awkward effort.
“For a payment oriented central bank digital currency to address unmet payment needs the main consumer groups who already have access to a range of payment options would have to widely adopt the currency and use it at scale,” the authors wrote. “This is necessary to encourage widespread merchant acceptance.”
It is almost laughable that the authors talk about “unmet payment needs” while acknowledging “the main consumer groups…already have access to a range of payment options.” Clearly the party is bent on “widespread merchant acceptance” is the bank itself.
The report even admits consumers have “relatively weak incentives to adopt and especially to use a central bank digital currency at scale…This suggests that addressing unmet payment needs for a minority of consumers by issuing a central bank digital currency could be challenging.”
No doubt. It’s hard to sell ice to an Inuit!
Alas, the most likely scenario for widespread adoption of a CBDC is a mandate. Even if the BoC gave an outright assurance this is not in the works, the public should be skeptical. Remember when Alberta Premier Jason Kenney said his government would never mandate COVID-19 vaccines but unapologetically did so within months?
It seems only public relations gymnastics or some strange manipulation of problem-reaction-solution could facilitate a Canadian CBDC. (That, or the U.S. Federal Reserve does it, “forcing” Canada to follow.) As tough a sell as a Canadian CBDC might be, the Bank can hardly veil its desire to see it happen.
Lee Harding is a Research Fellow at the Frontier Centre for Public Policy