By Erik Henningsmoen, Research and Policy Analyst
The Bank of Canada released a report in November 2023 on its public consultations toward the possible development of a digital Canadian dollar. As a central bank digital currency (CBDC), a digital Canadian dollar would constitute a digital version of the current Canadian dollar. It would provide features and digital capabilities to Canada’s currency that are not currently possible, but it would also come with risks, such as security and user privacy. This article highlights and contextualizes five key themes from this consultation process and what it portends for the potential development of a digital Canadian dollar. It follows a previous ICTC article about the currency’s design considerations.
While financial institutions, civil society, and individual Canadians saw some benefits and opportunities through adopting a digital Canadian dollar, there was a general degree of skepticism as to what advantage the country would derive from a digital Canadian dollar and whether the Bank of Canada could implement one in a way that protects Canadian’s privacy and digital security.
1) Canadians Are Familiar with but Struggle to Understand the Rationale for a Digital Canadian Dollar
Canadians taking part in consultations were unclear about what role a digital Canadian dollar could play in their lives and what significant benefit adopting a CBDC would create for Canada. A majority of respondents who participated in a Bank of Canada online survey were familiar with the concept of a digital Canadian dollar (87%), but a nearly equal proportion reported that they would not use one in their financial lives (85%). Ninety-two percent of survey respondents reported that there were no circumstances in which they would prefer using a digital Canadian dollar over current forms of payment. Although the online survey was not a perfectly representative sample of Canadians (respondents were older on average than the Canadian population), the strong views expressed by respondents will need to be considered by policymakers and Bank of Canada officials if a digital Canadian dollar is developed in the future.
2) Cybersecurity, Privacy, and Trust in Institutions are Significant Concerns for Canadians
When it came to trust in the ability of Canada’s financial institutions to provide adequate cybersecurity and privacy for a digital dollar, survey and focus group respondents offered mixed views. Survey respondents expressed an overall distrust of the bank’s ability to keep a digital Canadian dollar safe from cyberthreats and safeguard the privacy of users. They distrusted the ability of the Bank of Canada to create a secure CDBC that is resistant to cyberattacks (87%) and were also concerned about the security of current forms of digital payment, such as debit and credit cards, money transfers, and digital wallets (63%). Likewise, survey respondents reported distrust in the federal government (86%), technology companies (86%), financial institutions (72%), and the Bank of Canada itself (79%) to access and protect personal payment data.
Conversely, focus group participants reported significant trust in the Bank of Canada’s present management of the physical Canadian dollar and its ability to manage a potential CBDC. As one member of the focus group commented, “It’s the Bank of Canada. We’ve always trusted it. They wouldn't bring out something that’s not to be trusted.” Focus group participants noted that a digital Canadian dollar would be distinctly different from a cryptocurrency, being more secure, reliable, and less volatile. “As soon as you say government, you have all these crypto concerns addressed,” one focus group participant noted.
In today’s low-trust environment, the Bank’s survey findings are not surprising. According to the 2024 Edelman Trust Barometer, Canadians’ trust in government hovers at 49%. The Bank of Canada’s CBDC consultations point to the importance of building trust before any digital currency can be successfully instituted in an advanced liberal democracy like Canada.
3) Digital-Financial Exclusion Flagged as a Major Concern by Canadian Civil Society
Charities and civil society groups expressed concern that Canadians without access to the internet or mobile devices could be further excluded from the financial system if a digital Canadian dollar were adopted. Digital-financial exclusion would be especially acute if physical bank notes were to become less commonly circulated and electronic payments held sway. Northern and Indigenous communities, who already experience a lack of access to physical bank locations in their communities (and have gaps in access to cellular and high-speed internet services), risk further exclusion from the Canadian financial system in the advent of a digital Canadian dollar.
Yet, consulted charities also noted significant potential advantages to the payment of government benefits to recipients in a unified, secure manner, which would be especially valuable for Canadians who do not have a bank account for receiving benefit payments. Still, charities stressed that a digital Canadian dollar should only be used for unrestricted payments and that restricted funds, such as grants or rebates, should be dealt with separately and not rely on CBDC technology. One of the potential capabilities that could be built into a digital Canadian dollar is programmable restrictions on where, when, and how a digital dollar is spent. Such a capability proved controversial when discussed during consultations.
4) Canadian Financial Institutions See Risks and Opportunities in a Digital Canadian Dollar
Most consulted financial institutions were skeptical about the value of a digital Canadian dollar. Financial institutions expressed difficulty identifying a specific “use case” for a widely adopted CBDC in Canada, as Canadians already enjoy a plethora of payment options. Though they did note that Canadians who depend on cash or do not have bank accounts could use digital Canadian dollars for online payments.
Financial institutions suggested that institutions, such as banks, could operate as an intermediary between digital Canadian dollar users and the Bank of Canada like banks currently do with physical Canadian dollars. They also considered it important for provisions to be made so third parties, such as banks, fintech companies, and other financial services providers, would be able to build services and applications on the Bank of Canada’s digital Canadian dollar “platform.” Indeed, the perceived need to innovate and keep up with “technological advancements” in the wider digital economy was cited by focus group participants as a potential benefit.
Financial institutions expressed concern that the widespread use of a digital Canadian dollar for user deposits outside of the traditional banking system could reduce bank liquidity and make it more difficult for lenders to loan depositors’ money to borrowers. This “disintermediation” risk could lead to increased interest rates on bank loans. Financial institutions were also concerned that the widespread adoption of a CBDC could increase the likelihood and velocity of bank runs.
5) Monetary Sovereignty Was Seen as One of the Better Arguments for a Digital Canadian Dollar
In a world where increasing numbers of countries are adopting or considering adopting CBDCs, it may be necessary for Canada to implement a digital Canadian dollar or risk losing the sovereignty of its monetary system. If Canadians begin to use private crypto-currencies—or even the CBDCs of other countries—in their day-to-day financial transactions, a loss of monetary sovereignty could degrade the Bank of Canada’s ability to safeguard the Canadian monetary system in times of economic stress or crisis. Maintaining Canadian monetary sovereignty was seen by focus group participants as an important argument for adopting a digital Canadian dollar. As the consultation report notes, “Receptivity to a CBDC from a monetary sovereignty standpoint was strong when imagining a world where other major economies adopt CBDCs.”
Next Steps
While the Bank of Canada views its research and public consultations as exploratory, it has committed to taking feedback gleaned from the public consultation process into account as it continues conceptual work on CBDCs. The bank has also recently sought to file for trademarks associated with central bank digital currencies in Canada. The Bank of Canada has committed to carrying out further stakeholder consultations on key aspects of a digital Canadian dollar over 2024 but notes that the decision to adopt a CBDC in Canada would ultimately be made by the Canadian Parliament.
Erik Henningsmoen is a research and policy analyst with the Information and Communications Technology Council (ICTC).
