Why the COVID-19 pandemic highlights Canada’s need for a digital currency – National
Keep up with the times, or get left behind. That’s the message from some technologists to the Bank of Canada when it comes to a central bank-issued digital currency. They say the Bank of Canada’s wait-and-see approach runs the risk of leaving it behind in the race to innovate globally.
“Most of the Western world’s innovation in central bank digital currencies is very primitive at this point,” says Alex Tapscott, managing director of alternative asset management firm Ninepoint Partners.
A digital currency is any currency that exists exclusively in electronic form. Bitcoin is perhaps the world’s most well-known. But Bitcoin is a decentralized cryptocurrency, meaning it isn’t controlled by a single entity. A central bank digital currency on the other hand, would be issued managed by a central bank.
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According to the Bank for International Settlements (BIS), more than 80 per cent of central banks are researching how to leverage this technology.
For more than seven years, the Bank of Canada has studied the implementation, impact systemic risk potential associated with introducing a digital currency. Although its Governor Tiff Macklem told reporters in April that the pandemic has accelerated the digital economy “the case for a digital currency becomes more compelling,” the central bank says it has no immediate plans to launch a digital loonie.
Canada was this month ranked the most cashless economy in the world by money.co.uk, which pulled data from the World Bank as well as the largest debit credit card providers. It was also named the country most likely to go completely cashless globally. According to Payments Canada, data from the central bank, the use of cash has decreased dramatically during the pandemic for practical as well as safety-related reasons.
China is the only major economy to start real-life trials of its digital currency. This month it is giving away more than $7.7 million worth of digital yuan through a process it describes as a lottery. Its pilot project demonstrates how this technology can be used to provide targeted stimulus during an economic crisis such as the one induced by COVID-19.
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John Velissarios, Accenture’s global blockchain multiparty systems lead responsible for central bank digital currencies, says central banks around the world need to renew their focus on this technology to better prepare for the next global crisis.
“You would have government agencies departments with the ability to transmit money immediately, bypassing layers of inefficiency,” U.K.-based Velissarios told Global News.
Fintech experts say China’s march towards launching a national digital currency aims to improve e-commerce cashless payments, spur economic growth and, ultimately, assert its dominance in a system where the U.S. dollar is currently the global reserve currency.
“It’s very important, given the pace of progress that’s happening in China, that countries like Canada the U.S. stop studying start doing,” Tapscott says. “If they can balance the priorities of individual liberties privacy while creating a system that’s more robust, resilient can improve growth.”
He adds that what has transpired during the pandemic provides extra incentive for Canada’s central bank to make a move on the digital currency front.
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In an email to Global News, the Bank of Canada highlighted Deputy Governor Timothy Lane’s recent comments, which pointed out that China’s situation is different from Canada’s.
“[China’s] banking system doesn’t provide very good services to the public… You have these big tech companies that provide payment mediums that are used all over the place. You have Alipay WeChat Pay that are being used for everyday payments on a massive scale,” Lane told reporters on Feb. 10.
Velissarios says China is an example of what can happen if central banks don’t get onboard with a national digital currency.
“The danger [is] that we end up with maybe a lower grade of digital money used in commercial transactions consumer transactions, where a central bank could easily provide that level of trust guarantee,” he says.
Implementing a national digital currency would be a huge undertaking would require careful consideration of privacy concerns, as well as security issues such as money laundering, according to the Bank of Canada security experts.
“We have a very high standard in terms of acceptable level of privacy convenience resilience that we would attach to a digital currency if we were to launch one,” Lane said.
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