A new Bank of Canada staff discussion paper explored the likely uptake of a retail central bank digital currency (CBDC). In Canada 98% of adults have a bank account and card penetration is high. Hence for most citizens the roll out of a CBDC is unlikely to address unmet payment needs, given there are few. A tepid CBDC adoption would mean that few merchants would support a digital Canadian dollar.
The Bank of Canada’s staff focused on the CBDC trigger of a cashless society. This is one declared motivator for potentially launching a CBDC, with the other being widespread payment usage of crypto or a foreign currency. Either way, the authors highlight the need to sustain some level of cash usage in the digital age to support a crisis such as power outages.
The paper explores various consumer personas in the payment space, including the cash dependent and the technology averse. Around 5% of Canadians are heavy cash users ,and 7% own prepaid cards often bought with cash. These consumers either use cash because they find other avenues too expensive or they prefer the privacy of cash.
Despite very high internet penetration – 95% of adults used the internet in 2022 – around 8% of Canadians are categorized as non users and another 11% as basic users. That was in 2020, and usage during Covid would have reduced those figures.
These two groups – the cash dependent and technology averse – are the ones that a shift to a cashless society would most impact. The challenge is technology averse peple would face high adoption costs for a CBDC. So the main beneficiaries would be the cash dependent. And there are not enough of them to drive the CBDC adoption curve.
However, the paper concludes that there could be other motivations for using a CBDC, such as new functionality, the trust element of government backed digital money, or lower payment costs. Nonetheless, adoption could prove tricky.