Opinion: Bank of Canada must address the sky-high distrust around its digital currency

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Bank of Canada Governor Tiff Macklem participates in a news conference following an interest rate announcement on Oct. 25 in Ottawa.Adrian Wyld/The Canadian Press

Ori Freiman is a postdoctoral Fellow at McMaster University’s Digital Society Lab and The Centre for Governance Innovation’s Digital Policy Hub.

In June, the Bank of Canada concluded six weeks of online public consultations about issuing a digital Canadian dollar, an idea that has gained increasing prominence along with the rise of cryptocurrencies. Last Wednesday, the results of those consultations were published, along with the central bank’s report on the matter, and they are pretty revealing.

Almost 90,000 Canadians participated in the online survey. While keeping in mind that participation is not representative of the Canadian population and that nearly all who answered had heard about the idea of a digital Canadian dollar, the results were clear: privacy matters, and there is a major distrust of institutions with respect to how they handle private data.

According to the report, 85 per cent of the respondents would not use a digital Canadian dollar. Not surprisingly, most people ranked the ability to make private transactions as the most important potential feature of such a currency.

The report found:

– 86 per cent of respondents do not trust technology companies to access and protect personal payment data responsibly and lawfully.

– 86 per cent mistrust the government of Canada to handle their data.

– 72 per cent mistrust financial institutions.

Considering that these institutions already handle our data, these findings signal that there’s plenty of work ahead for regulators and everyone in the financial ecosystem. Trust is key to a thriving economy, and this pronounced lack of trust hinders opportunities and limits the potential for fintech-related innovations.

When it comes to the potential issuer of the digital Canadian dollar, 79 per cent of people distrust the Bank of Canada’s ability to safeguard their sensitive financial information. Assuming the Bank of Canada is a digital fortress, it must act to improve public trust in its ability to protect personal data.

Another point to consider is that 78 per cent of respondents do not believe the Bank of Canada will consider their feedback as it builds the capacity to issue a digital dollar. This is ironic because the whole point of conducting a consultation is to gather feedback and insights from the public, and yet responders feel their opinions will not be considered. The central bank needs to engage meaningfully with the public to build trust in its decision-making processes, too.

This sentiment is not exclusive to Canada. Currently, more than 130 central banks are exploring and experimenting with the idea of a central bank digital currency (CBDC). CBDC for retail and public usage promises an innovative payment option, an alternative to other digital currencies, and a safer society through its ability to track the movement of funds involved in money laundering, terrorism and crime. However, despite the positive promises, CBDCs pose serious concerns.

The concerns range from cybersecuring CBDC infrastructure, through economic scenarios leading to financial and monetary instability, to dystopian scenarios for democracy. The latter concerns have given CBDCs a negative reputation worldwide, and with some justification.

The ability of future governments to access, surveil and control private financial data, and program the digital money to have restrictions, could lead to monitoring citizens’ transactions, limiting freedoms, identifying political dissidents and acting against them. In fact, Canada often serves as an example among opponents elsewhere: during the truckers’ protests, even a democratic and liberal government was not afraid to use financial instruments against those involved in protests in Ottawa. How easy would that be with a CBDC?

A digital Canadian dollar has plenty of positive potential. It would serve as a novel payment option by the Bank of Canada for the public – in addition to cash. In an economy with a growing number of digital transactions and electronic means of payment, the argument goes, this new form of currency could better suit the needs of Canadians.

But a digital currency is doomed to fail without the public’s trust.

If the Bank of Canada goes forward, it must convincingly address these concerns, involve the public and civil liberty organizations, make privacy a fundamental feature of the digital currency and convince Canadians that a digital dollar would benefit the public.

These processes take time. Unlike the fast-paced, much-hyped, rapid and viral adoption of technological innovations, when it comes to the national currency, being cautious and careful is necessary to safeguard financial stability and democracy.

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