OTTAWA — A Bank of Canada official says pandemic-related shifts in how people shop means central banks must speed up work on creating their own digital currencies.
COVID-19 has meant more people are shopping online, and foot traffic for brick-and-mortar storefronts hasn’t caught up to pre-pandemic levels for many small and medium-sized businesses.
Bank of Canada deputy Timothy Lane says that shift in spending habits coupled with the speed of technological developments has narrowed the window to deliver a digital currency issued by the central bank.
“This is all looking a lot more urgent because of the speed with which technology is evolving and particularly, I think, with COVID we’ve seen an acceleration of the shift of activities online,” Lane said during the webinar.
“That suggests that if we want to be ready to develop any kind of digital central bank product, we need to move faster than we thought was going to be necessary.”
The comments from an online panel on Wednesday are a turnaround from late February, just before the pandemic struck, when Lane said there wasn’t a compelling case to immediately issue a central bank-backed digital currency.
He suggested many central banks still believe that to be the case, but circumstances are changing rapidly.
“The world is changing so quickly that if we want to have something that’s actually viable, and could be launched in a suitable timeframe, we need to be moving pretty quickly and deliberately to develop something,” Lane said during the panel hosted by the Reinventing Bretton Woods Committee and the Chamber of Digital Commerce.
The Bank of Canada has started work on its own digital currency should others become widely used in Canada and erode the central bank’s ability to manage monetary policy, but earlier this year officials believed they had a long timeline to create one before the Canadian dollar wasn’t used for most transactions.
The work builds on six-plus years of research into the growth of volatile digital currencies like Bitcoin and “stablecoins” that maintain a stable value, as the name implies, and are backed by currency holdings.
As it stands, the Bank of Canada can design, issue and distribute the bills Canadians hand over when buying a cup of coffee, but it doesn’t have the legislative authority from Parliament to offer a digital currency.
But over the course of the pandemic, the central bank has watched as some businesses have stopped accepting cash over health concerns, much to the Bank of Canada’s dismay.
If cash stops being widely accepted, there will be people excluded from the economy, Lane said Wednesday, such as disadvantaged people who pay with paper and not plastic. There are also wider privacy issues that need to addressed with a digital currency, he said, not to mention cross-border concerns.
“If one country introduces a central bank digital currency, then that immediately creates the potential for other countries to be affected . . . and that can create a whole other set of issues.”
Lane said the bank would have to hold widespread consultations to understand what Canadians would want in a digital currency before the central bank could issue one.
Lane is scheduled to speak again Thursday about digital currencies on a panel hosted by Central Bank Payments Conference where the focus will be on how central banks should react to Facebook’s cryptocurrency project, known as Libra.