Does Canada really need a digital loonie?

The Bank of Canada is wading into the fraught and controversial world of digital currencies, launching public consultations this week into how Canadians might use a digital dollar.

“We’ve been researching a digital dollar for quite a while now,” said Carolyn Rogers, the senior deputy governor of the central bank. “And we’re at a point where we need help from Canadians, we need to understand what Canadians want.”

And yet the bank maintains there is neither a need nor a plan to launch a digital loonie.

So, why bother with the public consultations at all?

Rogers says more transactions are being done digitally. Only about 20 per cent of retail transactions are done in cash. And, she says, there’s been a surge in interest in various digital currencies.

When most people think of a digital dollar, they first think of cryptocurrencies like bitcoin or Ethereum. What the bank is looking at is not quite crypto, but it’s not quite what we generally think of as cash either.

“The bottom line is a digital dollar [that’s] backed by the Bank of Canada,” Rogers told CBC News.

Does Canada really need a digital loonie?

The Bank of Canada launched public consultations this week asking Canadians what they think of a central bank digital currency. The central bank’s senior deputy governor Carolyn Rogers sat down with the CBC’s Peter Armstrong to talk about what a digital dollar would actually look like.

Decision would be up to government

Such so-called central bank digital currencies have gained traction around the world. Dozens of central banks are researching or launching public consultations.

In a statement when its public consultations began, the Bank of Canada reiterated that any decision to create a digital currency would be made by politicians, not central bankers.

“At this time, a digital Canadian dollar is not needed. And any decision to issue one rests with Parliament and the Government of Canada,” wrote the bank in a statement.

But if Parliament decided it wants a digital currency, the bank would be responsible for issuing one. In that case, Rogers says, policy-makers should make sure a safe and reliable currency is made available.

“If Canadians wanted a digital form of currency, and they didn’t have one available from the Bank of Canada, they might start to use some of those private currencies,” like bitcoin. Those currencies sometimes face wild fluctuations, among other complications.

“So we want to make sure that they have an alternative that is as secure as the cash in their wallet. But digital,” Rogers told CBC News.

But the announcement is being met with a certain level of skepticism.

Benefits of digital currency questioned

Some critics say central bank digital currencies are a way for big government to have yet more control over the financial lives of citizens. Others say they simply don’t see a need for a digital currency.

“It seems like this is a solution looking in vain for a problem to solve,” said Karl Schamotta, chief market strategist at the financial payments company Corpay.

His company’s entire business model revolves around finding ways for businesses to pay for purchases in as quick and efficient a manner as possible. And yet Schamotta doesn’t see a role for a digital loonie.

“In Canada we already have near-instant payments between people within the country. We have a very, very small unbanked population. What benefits would central bank digital currencies offer in terms of reducing payment system frictions?” he asks.

The entire idea has become something of a touchstone for conservative politicians who say they’re worried about government overreach.

Conservative Leader Pierre Poilievre has spoken in favour of cryptocurrencies as a way to “opt-out of inflation.”

But he got a roaring ovation when he railed against the very idea of a central bank-backed digital currency at a recent rally in Woodstock, Ont.

“As long as I am prime minister, there will be no digital ID forced on people, no central bank digital currency,” Poilievre said to huge cheers.

In Florida this week, Republican Gov. Ron DeSantis announced legislation that would ban the use of any central bank digital currency as money, saying efforts in that direction by the White House are “about surveillance and control.”

“Today’s announcement will protect Florida consumers and businesses from the reckless adoption of a ‘centralized digital dollar’ which will stifle innovation and promote government-sanctioned surveillance,” DeSantis said in a statement.

International payments problematic

The Bank of Canada says it’s simply trying to make sure the financial system works in a way that helps Canadians. Rogers says if some future government eventually decided to push ahead with the idea, it’s not like cash would suddenly disappear.

“It’s an alternative to the cash in my wallet,” Rogers said. “I can still have the cash in my wallet, we have no plan to get rid of cash. So this isn’t an exercise in replacing anything.”

But in terms of making financial transactions easier or less costly, Schamotta says the central bank is looking in the wrong direction. He says domestic payments, for the most part, work fine.

If there is a problem, he says, it lies with international payments.

He gives the example of someone in Canada trying to send money home to, say, the Philippines.

Each transaction “goes through a whole lot of hoops and steps and intermediaries, as it moves,” he said.

He says those costs add up and make a material dent in global GDP.

“The share of money being subtracted through the banking system as it moves across borders is horrible, and the poorest people in the world pay a huge burden for doing this.”

Schamotta says he wishes more policy-makers were looking at ways to reduce friction in those kinds of payments instead of seeking out a role for a digital loonie at home.

The Bank of Canada’s public consultation on a digital currency opened this week. It runs until June 19.