According to a central bank research paper, the majority of Canadians have no issue gaining access to financial services, therefore, they have little need to use a CBDC. According to a new report from the Bank of Canada, the average Canadian has little incentive to adopt a CBDC (central bank digital currency), which could hinder its widespread acceptance.
The central bank examined a fictitious scenario where cash was essentially removed to determine what function a possible CBDC could serve in assisting the underbanked in the staff discussion paper released on August 10. Given that Canadians don’t encounter significant obstacles to using financial services like bank accounts or debit and credit cards.
Do you know what CBDC is?
A CBDC is issued under the government that is not pegged to a physical good. They are issued by central banks, whose duties include establishing monetary policy, issuing currency, and supporting financial services for a country’s government and commercial banking system. The People’s Bank of China (PBOC), the Bank of Japan, the US Federal Reserve System, and the Deutsche Bundesbank are a few examples of central banks.
Stablecoins and CBDCs are related but not the same. To maintain a reasonably consistent value over time, stablecoins are a specific kind of private, stabilised cryptocurrency tied to another money, asset, or financial instrument. CBDCs are issued and run by the state, in contrast to decentralised cryptocurrencies.
Research Findings on Adopting CBDC by Canadians
According to the study, 90% of rural and urban families have access to high-quality internet, and 98% of Canadian adults have access to bank accounts, credit and debit cards. However, it was discovered that substituting cash with digital currency will also result in fewer payment options for tech-averse Canadians and an inability to make the most typical payments for those who depend on cash. Hence, Canadians have little incentive to adopt CBDC.
A CBDC’s projected low adoption rate would also make retailers less likely to want to accept one, further reducing its utility.
How can CBDC help Canadian Banks?
The article instead proposed non-CBDC-related strategies that could aid the underbanked more effectively, such as enhancing internet accessibility, boosting the availability of low-cost bank accounts, strengthening merchant involvement with distant areas, and continuing to provide cash.
The article emphasised that it was impossible to foresee how Canadians would respond to a CBDC and stated that more people might be interested in using it for several different reasons. Even if there was more demand than it appeared, the study concluded that the challenges for consumers and businesses to widely embrace a CBDC “appear to be significant.”
Does Cash Still Dominate the Markets?
The report also made a strong case for the value of the currency, stressing that there wouldn’t be any offline payment options in dire circumstances like severe weather or extensive power outages without cash. According to the report, it could suggest that the system-wide benefits could potentially encourage digital payment innovations that are operational on an offline basis. It also suggests the importance of sustaining cash.
According to the study, this hypothetical situation shows how crucial it is for the Canadian Bank to keep issuing cash and maintaining access to it. The central bank had previously declared that it would continue to provide cash as long as there remained a need for it and that a CBDC would be issued only in response to the emergence of a society devoid of currency or the widespread adoption of foreign CBDCs or digital currencies like Bitcoin.