The Bank of Canada (BoC) recently published a paper explaining the benefits of transitioning and adopting a central bank digital currency (CBDC), while also highlighting some of the issues with physical cash and the so-called “constrains” it has on the economy and banks.
Published on July 10th, the paper titled “The Role of Public Money in the Digital Age” does not discuss privacy issues and effects a CBDC would have on commercial banks, but rather answering their own questions as to why one will most likely become necessary.
You can read/download the official document below (annotations are mine):
The central bank admittedly talks in circles – one sentence emphasizing the need for a CBDC and its benefits, while others attempt to downplay risks and attempts to make a show that the central bank is neutral. In its opening abstract, the BoC said “a relevant retail public money—whether in the form of cash, a central bank digital currency or both—is a necessary component of such a monetary system.”
The bank points to the fact that cash use is rapidly in decline not just in Canada but around the world, which therefore heightens the need for a new currency such as CBDC, which the BoC says “can be designed to be universally accessible and non-exclusionary.” As it stands, “only 22% of transactions at the point of sale were conducted using cash” as of 2024, the BoC reports.
Cash is likely to decline in relevance going forward and should it ever decline to the point that it is no longer viable as a payment option, then a properly designed CBDC would help fill the gap and maintain the relevance of a retail public money in the economy. A CBDC would fulfill the role of cash as the economy and money become increasingly digital. This would maintain the current role of retail central bank money in the economy. Such a CBDC would be offered alongside other complementary regulatory and policy responses to evolving conditions in payment markets.
Therefore, to maintain a well-functioning monetary system during the transition to a more digital economy, the safer policy response seems to be to complement regulatory changes with the issuance of a digital equivalent to cash—a CBDC.
The BoC wrote
The BoC argues that “the relative importance of cash in the economy is diminishing, driven by demand and supply factors.” They added: “Consumers seek the convenience of digital payments, and merchants increasingly favour digital payments, either because they are online only or because they are brick and mortar businesses that find processing cash too expensive.”
The bank went on to say that “new technologies such as blockchain can underpin networks where digital representations of value can be transferred securely and easily. These networks are easy to set up, as demonstrated by the proliferation of cryptocurrencies, stablecoins and other forms of digital assets.”
But the BoC then makes it clear their feelings to adopt a CBDC is the answer.
Our answer is that, once the extent of digitalization crosses a certain threshold, retail public money in digital form, henceforth a CBDC, would be essential for maintaining a well-functioning monetary system, particularly if the use of cash for transactional purposes declines to the point that it can no longer be considered a widely available payment method. An economically relevant CBDC should be part of the overall policy response.
The authors wrote; adding that they “suggest that a CBDC and regulatory responses should work in tandem to safeguard the monetary and regulatory sovereignty of Canada.”
As the use of physical tenders continues to weaken, the BoC says “the business driver may not be strong enough, and a regulatory requirement may be necessary.”
The BoC proceeded to also to take several swipes at the use of cash, listing some of the apparent issues it creates for them and the economy. The bank argues:
“In an increasingly digital economy without a public form of digital money acting as an outside option for consumers—a role cash plays today—issuers of private forms of digital money would increasingly be able to exercise market power to differentiate their liabilities from one another and in extremis from the unit of account.
“Ultimately, this reduces the efficiency of the economy because users need to monitor both risks and exchange rates when different forms of money (including alternative units of account) compete in a jurisdiction, and the resulting friction strengthens the market power of the issuers of these alternative forms of money. In both cases, the monetary system would be at risk of losing its uniformity and the efficiency that it provides.”
The BoC further chastised the dollar-dominated economy, claiming “more extreme examples of dysfunctional monetary systems are dollarized economies, where the state loses the capacity to define and enforce the use of a domestic unit of account.”
And again, the central bankers assert that “depositors’ demand for cash constrains the market power of banks by limiting their ability to reduce interoperability or to charge fees that could create large wedges between cash and deposits.” They add, “cash, as an alternative to card-based payments, constrains the market power of payment service providers in physical point-of-sale transactions.” Moreover, they say, “cash also constrains the market power of payment service providers for physical point-of-sale transactions.”
In the case of mitigating the potential for bank runs, the BoC admits that a CBDC would grant the ability to prevent this from happening.
Our argument—that cash constrains the market power of banks in providing means of payment—does not rely on the risk of bank runs being empirically true or not. Our argument is in addition to any mechanism that might work through bank runs. As a consequence, the potential role of cash in bank runs has no bearing in our main point. Instead, we claim that banks in equilibrium understand and satisfy the demand from retail customers to make cash widely available (despite the associated cost) because it is the dominant or optimal strategy to do so.
The outcome of this experiment would be quite different if banks could coordinate on a strategy to all become cashless. In that scenario, customers would have to accept the terms under which banks would redeem their deposits.
[…] The fact that [CBDCs] are issued by a central bank increases the risk that Canadians could find them stable and attractive enough (even with residual exchange rate risk) for use in everyday payments.
But after having emphasized the necessity of a CBDC for most of the report, the BoC says they “do not suggest a “CBDC alone” approach.” In other words, introduce CBDC in congruence with existing tangible bank notes.
Last year, Christine Lagarde, President of the European Central Bank (ECB) announced that the “digital euro is on the move,” claiming cash is not going anywhere and citizens will have access to both cash and digital money.
The BoC acknowledged that by shoving and enacting harsh regulations on a populous to force CBDC acceptance is not an adequate approach, noting that “large underground economies emerge that undermine those laws” emerged because of it. The bank did not list any specific names, but countries such as Nigeria are a shining example of one of these failed implementations.
Furthermore, the BoC explains that should the availability of cash dwindle, only a select few options consumers can turn to are slim. They say: “In a future with no retail public money, retail depositors can only exit their bank to go to:
- Another bank
- Other financial assets (e.g., stocks, corporate bonds or government bonds)
- Commodities (e.g., gold)
- Foreign currency
But the effectiveness of these assets is limited, if not even useless, the BoC states.
In a general financial crisis, people would not move to another bank and would consider only government bonds, gold and foreign currency to be attractive ways to store wealth.
But bonds and gold are illiquid and cannot be used for purchases, while the last option entails foreign exchange risk, may not be accepted locally in payments and is a direct threat to monetary sovereignty. In a crisis, a retail public money can serve to protect monetary sovereignty because it is a safe and highly liquid means of payment.
The BoC wrote
In conclusion, the BoC ends their report by simply stating: “Given this role of retail public money, it is likely that a digital form of cash, a CBDC, will be needed in order to maintain the status quo.”
AUTHOR COMMENTARY
There’s more information in that document that I did not cover, so if you want to just read through my highlighted annotations that I thought were noteworthy, feel free to peruse their document.
All throughout their report it is filled with typical Jesuitical sophistry and doublespeak. One minute they try to play it off as if they are neutral and are not actively pursuing a CBDC, and then the authors turn around and routinely laud the benefits of a CBDC whilst souring on cash. This is not on accident.
This document is very important in my view, because it once again lays out the overt intentions of the central banks in general and where this is all headed, and yet this paper will get absolutely zero press coverage at all.
Regular readers will recall that I have said on a number of occasions that central banks collectively are rapidly working towards becoming the “lenders and buyers of last resort” – and that is exactly what the BoC said in their report; saying things such as “the Bank of Canada’s role as lender of last resort,” and framing “a monetary policy framework and lender of last resort facilities.”
Proverbs 22:7 The rich ruleth over the poor, and the borrower is servant to the lender.
Let’s also not forget that even here in the United States this doublespeak and downplaying of progress being made on the CBDCs by the Federal Reserve, even though what thy are doing is evidence to the contrary; not to mention the fact that roughly a week after Fed head Jerome Powell claimed the Feds were not even sure if they were going to produce a CBDC, then SWIFT announced that they will be launching a CBDC and tokenized asset trading network by next year or at the latest in 2026.
SEE: SWIFT Banking System To Launch CBDC And Tokenized Platform, Expected To Be Released By 2025 Or 2026
Furthermore, the BoC’s comments about other assets failing when a currency collapses and cash runs dry are true, whether people care to admit to it or not; as this is something I have articulated more than once for years to the chagrin of some. I plan to speak more on this in other reports and sermons, as I know many of you have hit me up with questions about the economy and the times to come, so please stay tuned.
SEE: The Wisest Thing You Can Do With Your Money – Growing Knowledge And Gaining Skills
[7] Who goeth a warfare any time at his own charges? who planteth a vineyard, and eateth not of the fruit thereof? or who feedeth a flock, and eateth not of the milk of the flock? [8] Say I these things as a man? or saith not the law the same also? [9] For it is written in the law of Moses, Thou shalt not muzzle the mouth of the ox that treadeth out the corn. Doth God take care for oxen? [10] Or saith he it altogether for our sakes? For our sakes, no doubt, this is written: that he that ploweth should plow in hope; and that he that thresheth in hope should be partaker of his hope. (1 Corinthians 9:7-10).
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