Report Finds ‘Significant’ Barriers to Adoption of Central Bank Digital Currency in Canada

The Bank of Canada building in Ottawa in a file photo. (Sean Kilpatrick/The Canadian Press)

A government-issued central bank digital currency (CBDC) would face barriers to adoption and require “significant and sustained” investment by the Bank of Canada (BOC), according to a new report.

“As a practical matter achieving wide adoption, acceptance and use of a central bank digital currency could be challenging because most Canadians have access to several methods of payment,” said the Aug.10 report from the BOC, which was first obtained by Blacklock’s Reporter.

“Nevertheless, even if there were greater market interest than we suggest, the two-sided payment market barriers facing broad-based adoption and use—which would be required for a CBDC to be useful—appear to be significant.”

In May, the BOC announced it was exploring the possibility of issuing a CBDC, seeking consultation from the public on its design.

“As Canada’s central bank, we want to make sure everyone can always take part in our country’s economy. That means being ready for whatever the future holds,” Senior Deputy Governor Carolyn Rogers said in a news release on May 8.

The new BOC report, “Unmet Payment Needs And A Central Bank Digital Currency,” noted that some Canadians could face difficulties making a payment if cash was no longer accepted in that instance. It noted that while 98 percent of adults own a bank account and debit card and 87 percent own a credit card, and only around 14 percent have abandoned cash purchases.

“About half of these people still carry some cash presumably as a precaution,” wrote researchers.

The report also said an estimated 13 percent of Canadians have owned Bitcoin and that “ownership and use of other crypto instruments for payments is even less significant.”

The report concluded that a significant number of Canadians “dislike using technology and are therefore reluctant to make payments online.” It is estimated that 11 percent of Canadians with internet access refuse to bank online, and 16 percent do not shop online.

Barriers to Widespread Adoption

The report warned that all the factors combined may thwart the widespread adoption of CBDCs as “unnecessary or unwanted.” It said most adults 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.”

“For a payment-oriented central bank digital currency to address unmet payment needs the main consumer groups who already have access to a range of payment options would have to widely adopt the currency and use it at scale,” wrote researchers. “This is necessary to encourage widespread merchant acceptance.”

The report’s authors said Canadians would have weak incentives to adopt and use CBDCs at scale. “If that were the case widespread merchant acceptance would also be unlikely. This suggests that addressing unmet payment needs for a minority of consumers by issuing a central bank digital currency could be challenging.”

The finding follows pre-pandemic BOC research that found just 5 percent of Canadian retailers have stopped taking cash. The typical Canadian carries $70 in their wallet, mainly $5 and $10 banknotes, and keeps another $185 in their vehicle glove box or dresser drawer, said a 2020 survey.