Analysis: Canadians have serious trust issues when it comes to a central bank digital currency

Canada Governor Tiff Macklem

Bank of Canada Governor Tiff Macklem is seen during a news conference following an interest rate announcement in October 2023 in Ottawa. THE CANADIAN PRESS/Adrian Wyld

The Bank of Canada recently published findings from its public consultation report on a central bank digital currency, known as CBDCs.

The findings reveal that financial privacy is top of mind for Canadians, yet those same Canadians do not trust the very institutions that would be responsible for handling data privacy and protection.

Put simply, CBDCs can be thought of as a digital banknote.

However, the key distinction between physical cash and a digital currency is that using cash allows for anonymous and untraceable transactions because it’s not recorded anywhere. CBDCs, on the other hand, would record all transaction details in a centralized ledger.

Design features

One of the most important CBDC design features identified in the consultation was the ability to make private transactions. Privacy is consistently ranked as one of the top concerns among public consultation reports in other countries.

To address some privacy concerns, the innovation hub of the Bank for International Settlements, a global financial institution owned by member central banks, is actively working on projects with those banks around the world, including exploring the possibility of cash-like anonymity for CBDCs. Ultimately, the level of privacy employed will be up to individual nations to determine.

CBDCs are often described as the safer alternative to cryptocurrencies like Bitcoin, because they are backed by a reliable and trusted institution — in this case, the central bank.

However, during a period of record-high inflation and a cost of living crisis, the Bank of Canada’s reputation has faced increased scrutiny from politicians and the general public. Conservative Party leader Pierre Poilievre, for example, has attacked the credibility, financial literacy and independence of the central bank.

A red danger sign in front of a Bank of Canada sign.
A construction sign is seen near the Bank of Canada museum in Ottawa in November 2023. THE CANADIAN PRESS/Adrian Wyld

Is Parliament up to the task?

The decision to issue a digital Canadian dollar rests with the federal government. Yet there continues to be a lack of comprehensive discourse on the topic among Canadian politicians.

During his leadership campaign, Poilievre promised he would ban a Canadian central bank digital currency if elected prime minister. That’s a pledge the Conservative party continues to support.

In the House of Commons, Poilievre has claimed that a CBDC would lead to government control of personal bank accounts, likening it to the situation faced by the so-called Freedom Convoy protesters.

A man in glasses in an overcoat and red tie frowns in front of a La Banque du Canada sign.
Pierre Poilievre speaks during a news conference outside the Bank of Canada in Ottawa in April 2022. THE CANADIAN PRESS/Justin Tang

That line of thinking seems to have resonated with some Canadians; one survey participant stated “a digital dollar sounded great until we saw the federal government freeze private bank accounts of its own citizens for supporting a political movement it disagreed with.”

The 2022 federal budget included an announcement of the government’s intention to launch a financial sector legislative review, focusing on the digitalization of money.

However, no additional statements or updates have been put forward and there has been virtually no discussion on the topic from Prime Minister Justin Trudeau or Finance Minister Chrystia Freeland.

Building trust?

In contrast to Bitcoin, which operates in a trustless system that is not issued or managed by a central authority, CBDCs cannot succeed without trust.

Historically, central banks have maintained high levels of public trust, but that reputation doesn’t necessarily extend to the digital sphere. A notable 87 per cent of respondents said they don’t trust the Bank of Canada to issue a secure digital Canadian dollar that is resistant to cyberattacks.

A person looks at the CRA website on their laptop.
A person looks at a Canada Revenue Agency homepage in August 2020. THE CANADIAN PRESS/Graham Hughes

A majority of respondents — 74 per cent — also completely distrust the federal government’s ability to protect personal payments data. That’s understandable given the class-action lawsuit launched against Ottawa in the wake of Canada Revenue Agency cyberattacks in 2020. This skepticism extends to the central bank, with 58 per cent expressing complete distrust in their ability to safeguard that data.

Although participants self-selected into the survey, meaning the findings aren’t necessarily representative of the Canadian population, these findings should serve as a wake-up call for policymakers to do more to bridge the trust deficit that plagues public perceptions.

Currently, there is no appetite for a CBDC in Canada. If the central bank wants this to be a successful endeavour, it must continue to engage with Canadians through public consultations.

Transparency required

The decisions around CBDC design features must be transparent. The central bank must take the time to learn from lessons abroad. It will also need to develop an extensive digital Canadian dollar literacy campaign to clearly articulate the value of a CBDC.

Canadian politicians must engage in comprehensive discussions about a CBDC that are open to the public. An outright ban could potentially stifle innovation, limit economic opportunities and the country’s ability to adapt to the rapidly evolving digital financial landscape.

The public consultation findings serve as a vital democratic tool offering Canadians and policymakers key data about public preferences and concerns. Understanding and addressing these concerns will be crucial in shaping responsible and inclusive policies for the future of digital currencies in Canada.The Conversation

Anwar Sheluchin, PhD Student, Political Science, McMaster University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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