The agreed subject for an interview last February with Timothy Lane, the Bank of Canada deputy governor charged with keeping an eye on financial technology, was digital cash. But I begged his indulgence on another matter, as it seemed appropriate to talk for at least a few minutes about COVID-19, which appeared to be on the verge of overrunning Europe after ravaging much of Asia.
I assumed I would write a hot take on what one of the Bank of Canada’s leaders had to say about the coronavirus, which I did , and then take a couple of days to pull something together on the potential for a Canadian central bank digital currency (CBDC).
Never happened. Before the week was out, Jerome Powell, chair of the U.S. Federal Reserve, signalled a return to the barricades with a surprise Friday afternoon statement that said the Fed would “use our tools and act as appropriate to support the economy.” On March 3, he launched the first of many volleys. For their part, Lane and his colleagues at the Bank of Canada decided to slash the benchmark interest rate a day later, kicking off the most aggressive period of monetary stimulus in Canadian history.
A column on the future of payments quickly dropped to the bottom of my to-do list. But maybe it shouldn’t have. One of the unexpected consequences of the crisis is that it has probably made the introduction of a digital dollar inevitable, rather than simply an intriguing possibility, which is all you could have said about the idea in February.
The COVID-19 lockdowns have sped up our embrace of a digital economy by years. Chuck Magro, chief executive of Nutrien Ltd., the world’s biggest seller of fertilizer, talked this spring about how farmers had finally started using the company’s e-commerce applications in significant numbers.
Online sales by brick-and-mortar retailers were 74 per cent higher in September than a year earlier, according to Statistics Canada . The shares of Ottawa-based Shopify Inc., which helps smaller companies build e-commerce websites, and Montreal-based Lightspeed POS Inc., which enables digital payments, have surged this year, as both companies represent bets on the future.
Surely, then, it’s only a matter of time before the public demands a unit of exchange that facilitates virtual business as seamlessly and as cheaply as cash does in the physical world. The Central Bank of the Bahamas last month issued a digital currency called the “sand dollar.” More significant is what’s going on in China, where the central bank has been running pilot projects on a digital version of the yuan.
If the world’s second-largest economy adopts a state-backed electronic coin, then it will be difficult for the rest of the world to argue that it can’t — or shouldn’t — be done.
“Online shopping has got a really big boost from this whole period,” Lane said on Nov. 24, when we met via videoconference for a second conversation about CBDCs. “We’ve also seen more automation — at least, incentives to automate some processes and so on. That may also move us closer to a time when we may need to consider having a digital version of cash.”
In February, the Bank of Canada concluded after a long research period that a digital form of official money was unnecessary. It did, however, set out the conditions that would cause it to change its mind: competition from a popular digital currency backed by a company or another government, or a dramatic shift in consumer behaviour.
Back then, the former seemed like the bigger threat, since Facebook Inc. had been pushing hard to get regulatory clearance for Libra, a “stable coin” that would facilitate transactions across its vast social network. Facebook has since scaled back its ambitions in the face of significant political headwinds, but, as it did so, the COVID-19 lockdowns pushed commerce online in a way that no one saw coming.
“You’ve got private companies that are obviously going to be looking for opportunities to take advantage of the changes in consumer behaviour,” Lane said. “If the public actually has a desire to use something that has the attributes of cash, but that can be used electronically, then that could also be a case that would lead us to consider this much more seriously.”
Hard currency isn’t about to disappear. The Bank of Canada and six other major central banks last month pledged they would continue to supply cash “as long as there is public demand.” Data show there still is lots of cash out there, but it’s not moving through the economy with its usual pace: in other words, we’re hoarding coins and paper, and buying stuff online.
The Canadian Association of Secured Transportation thinks retailers might be part of the problem. Steven Meitin, the group’s president, said his members report fewer total ATM transactions, but that withdrawals are larger. A “sizable” number of stores are refusing to accept cash even though authorities have concluded there is little chance the coronavirus spreads by handling bills and coins.
The association has recently started pushing for federal legislation that would force retailers to accept cash. “We’re fine with having choices,” Meitin said. “The problem is that the choice is being made by businesses that refuse cash.”
Lane was clear that he wasn’t quite ready to conclude that such pandemic-led behaviour will last. The Bank of Canada appears to want us to make the choice on digital money, not the other way around. “Changes in household behaviour are obviously going to be drivers of these decisions,” he said.
Copyright Postmedia Network Inc., 2020