Bank of Canada: Canadians Don’t Really Need CBDC (and Won’t Unless They’re Incentivized To)

Bank of Canada released research concluding that the CBDC adoption may be hard to push through since few Canadians experience payment frictions.

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Bank of Canada (BoC) shared a portion of its latest CBDC insights in a staff discussion paper titled “Unmet Payment Needs and a Central Bank Digital Currency.” The report analyzes Canadians’ payment habits in the current and future, cashless environments, focusing on the CBDC’s potential to meet unaddressed payment needs.

BoC’s experts observe that most adult Canadians don’t experience gaps in their access to payment methods “and therefore might have relatively weak incentives to adopt and, especially, to use CBDC at scale.” One exception is a scenario involving Canada going cashless.

In such circumstances, people who, for various reasons, stick to cash would find it difficult, if not impossible, to settle with merchants who accept only electronic means of payment. However, cash hardliners are a rarity in Canada, with 98% of adults having a bank account and 87% also having a credit card.

The paper suggests that in order for the CBDC to succeed, the technology would have to be rolled out widely and used at scale. Literally, the authors talk about “addressing unmet payment needs,” which sounds intriguing in the context of previous observations about Canadians not experiencing issues with access to payment methods.

Massive CBDC launch would be necessary – the authors further elaborate – “to encourage widespread merchant acceptance of CBDC, which would, in turn, encourage further consumer adoption and use.” This may not be easy, though, due to the lack of serious payment frictions and the need for improvement among customers.

“The minority of consumers with unmet payment needs will only be able to benefit from a CBDC if the majority of consumers experience material benefits and therefore drive its use,” the authors write in the abstract’s concluding thought, hinting at the potential need for incentives.

The CBDC discussion in Canada is gaining momentum, with new research, data, and commentaries popping up, some of them providing conflicting results. In May, the BoC launched a consultation asking for public input on the digital Canadian dollar and hinting at the risk of financial exclusion for those overly faithful to cash and unwilling to go along with the CBDC development. The response on Twitter was overwhelmingly negative.

On the other hand, the survey’s results published in July paint a surprisingly different picture, with 59% of Canadians willing to use CBDC when it’s available and 51% undisturbed by privacy vulnerabilities.