A recent Bank of Canada report makes two things apparent: Canadians don’t need a digital currency but the bank really wants one..The recent staff discussion paper Unmet Payment Needs and a Central Bank Digital Currency (CBDC) is summed up best by the conclusion of its second-last paragraph..“[A]chieving wide adoption, acceptance and use of CBDC could be challenging because most Canadians have access to several methods of payment using commercial bank money, provided by sophisticated incumbents. Overcoming such barriers could require significant and sustained investment by the central bank,” conclude the paper’s six authors..How strange. Why does the bank portray CBDC as the solution to a problem that clearly doesn’t exist? Because it wants one, but is left searching for a way to make it seem good to the public..In 2021, the bank said it was examining a CBDC only as a “contingency plan” if the Minister of Finance wanted one. Even so, in August of that year, the Bank issued a job posting for a product architect for “a program of major social significance to design a contingent system for a central bank digital currency (CBDC), which can be thought of as a banknote, but in digital form.”.Much as this “system” of “major social significance” pays lip service to the public and government, it’s clear the bank has been horny for a digital currency for years..Since 2016, the bank has been issuing reports on the concept. And, in 2020, the bank co-authored a report with six other central banks and the Bank of International Settlements to establish foundational principles and core features of a CBDC..In February 2021, the bank published three CBDC proposals: one from the University of Calgary, another from McGill University, and a joint University of Toronto and York University submission. Now it’s putting arms and legs on the “contingency” plan..The problem for the bank is that little need for the CBDC means little want and little acceptance. It’s hard at first to see what “contingency” would ever make it happen because a CBDC is a solution in search of a problem..Consider, the report finds only 13% of Canadians have owned bitcoin, and only 1% spend with it. There’s no mad rush to buy and use digital currency..Other Canadians “dislike using technology and are therefore reluctant” to do commerce via the internet altogether. Here, 11% with internet access won’t bank online and 16% don’t shop online either. Only 14% of Canadians avoid using cash altogether, but “half of these people still carry some cash presumably as a precaution.”.Meanwhile, 98% of Canadians have a bank account and debit card and 87% own at least one credit card. The current system is working just fine..Given all this, there’s no way the worst-case digital dystopia could happen, right?.You know the one, where a digital currency is imposed and physical cash disappears..The one where a type of permanent Emergencies Act allows the Bank and governments to trace transactions and cut dissidents out of the financial system..Whew, it’s a good thing Bank of Canada Governor Tiff Macklem promised in 2021, “If we were to issue a digital currency, we wouldn’t stop printing cash.”.But wait, that doesn’t totally make sense..If a CBDC is a contingency plan and Macklem is not setting policy, how can he promise cash will remain when it arrives? And hasn’t he just admitted it’s the bank that does the printing, so eliminating cash is within his purview?.Alas, the bank has been probing a cashless society for years, just as it has a CBDC. In 2020, the bank issued a Cash Alternative Survey. It found only five percent of merchants refused to take the notes and coins. Yet, the entire premise of the recent report is a nation without cash..“In our analysis, we simply assume that cash vanishes from the current environment and consider the resulting unmet payment needs,” the paper writes, later adding, “Now suppose that the central bank issues a CBDC focused on providing payment services in this cashless environment.”.Voila, the real hypothetical “contingency” required is no cash.. “Unmet needs” could be met by a CBDC but only in a “cashless environment.” Otherwise, the whole premise can’t be implemented. .“Cash” is found 91 times in the report if you include the 19 times it forms the first part of “cashless.” But cash can’t disappear unless something drastic kills its public demand..“Most adult Canadians do not experience gaps in their access to a range of payment methods, and this would probably continue to be the case in a cashless environment..Some people could, however, face difficulties making payments if merchants no longer generally accepted cash as a method of payment,” the authors wrote..The paper echoes Macklem by saying, “the bank will not unilaterally stop supplying bank notes” but “the cumulative behaviour of most consumers, merchants, and cash distributors” could bring “the volume of cash transactions…to a significantly low level.”.It seems the only way a CBDC will occur is problem-reaction-solution, where some problem makes cash users react by refusing to use it any longer, after which the banks “solve” the problem with a CBDC..If implemented, this “payment-oriented CBDC in a cashless economy” would have “a high level of privacy, but not anonymity.”.Now what problem could trigger these dominos?.How about a nationwide pandemic? Remember not long ago when COVID-19 made some merchants stop taking cash and some chain restaurants replaced 'dangerous' paper menus with ones online?.The paper concludes with advice that cash remains, given its importance “when digital networks fail and in crisis periods.” That’s true and wise, but Canadians should feel little assured this state will remain..Celist Yo-Yo Ma once said, “Music is what happens between the notes.”.Between the bank notes it has promised to print and a report stating how useless a CBDC currency is, two things become clear: the bank wants its digital currency and knows what must happen to make it real.
