Central bank digital currencies (CBDCs) have been a hot topic of discussion by many central banks globally. The Bank of Canada has published a discussion paper that questions how payment needs within a cashless environment are met with a CBDC. The discussion paper highlighted some deficiencies with launching a CBDC.

Bank of Canada publishes discussion paper on CBDC value

The Canadian central bank has spent the last few years conducting research around a digital loonie. The research has addressed the design features of the CBDC and how it would best serve Canadian citizens. The bank expects that a central-backed digital currency will meet citizens’ diverse payment needs and circumstances.

In the new discussion paper, the Bank of Canada noted that most Canadians did not face deficiencies when accessing various payment methods. The existing conditions will continue within a cashless financial ecosystem.

The discussion paper also noted that 98% of Canadian adults had access to bank accounts, leaving a tiny unbanked population. On the other hand, 87% of Canadians had credit and internet access.

Despite a streamlined financial sector and most people accessing banking services, the Bank of Canada said that some Canadians faced issues making payments in cases where merchants no longer accepted cash as a payment method.

As such, a payment-oriented CBDC could solve the issue by having widespread adoption among most people that would not necessarily need it. If many people fail to adopt the CBDC, acceptance by merchants may remain low.

“Despite our broad conclusions about high financial inclusion in Canada, widespread access and use of payment methods, and low unmet needs, we are not predicting how various market segments would react to the introduction of a new payment method like CBDC, which could offer a novel value proposition,” the discussion paper said.

Cash still plays a dominant role

The discussion paper addressed the role cash plays in the modern financial sector, saying that cash payments were still preferred. The paper pointed toward the necessity of cash in the current ecosystem, saying that a lack of cash payments would affect offline payment methods in emergencies. Cash payments reign supreme in some emergency cases such as power outages and poor weather conditions.

The bank also explained that there were potential benefits in encouraging innovations across the digital payments industry. It said that some critical innovations would encourage offline digital payments while promoting the benefits of using cash.

The paper follows an announcement by the Bank of England about hiring an advisory group for the digital pound. The country is now entering the design phase for its CBDC, and it will work alongside the Treasury for this initiative. The Academic Advisory Group for the CBDC will comprise economics, finance, and business experts.