Digital dollars gain currency

Next time you approach a supermarket checkout, take note. Does anyone in the line ahead of you use cash? How many self-checkout stations are available? Are there fewer attendants than there used to be?

Cash is quickly becoming a quaint, old-style practice. Direct deposit has replaced paycheques. The vast majority of Canadians now file their taxes online. ATMs are long-established and most banking can be done with a basic smartphone.

Most money is now virtual, numbers in an electronic spreadsheet keeping track of how much you have and how much you owe.

So news that the Bank of Canada is quietly considering establishing a digital version of the loonie that might eventually replace bank notes is not really surprising.

The Bank of Canada, the country’s central bank, is responsible for monetary policy, fighting inflation, and bank notes. They ensure that Canada’s money is properly backed and that the world’s markets have confidence in our ability to meet our financial obligations.

So they have a vested interest in protecting the idea of the Canadian dollar.

The very concept of money is undergoing a vast redefinition. Online cryptocurrencies like Bitcoin have cropped up, creating storehouses of value that governments and banks don’t have much control over.

Facebook is likely the first in a long line of gigantic corporations thinking about issuing their own currencies. Can Amazon or Apple be far behind?

Why is this happening? Two main reasons. First, national currencies deposited in traditional banks come with rules. Governments like to know how much is there and who owns it in order to gather taxes. And there will always be people who don’t want governments to know that. Also, banks like to charge fees to move money.

Second, millions of migrant workers like to send their earnings home, but many don’t have bank accounts. Digital currencies could allow them to transfer funds across borders to their families with lower fees than regular banks charge.

Social media accounts are free and billions of people in poor countries have them. Facebook sees an opportunity there and is working on a digital currency it calls Libra. If you can use your Facebook account to avoid banks and send money home, why wouldn’t you?

Central banks are worried. The U.S. Federal Reserve, for instance, wants to protect the U.S. dollar as a reserve currency in order to keep its bond borrowing costs low. That can’t happen if hundreds of billions of U.S. dollars move over into untraceable digital currencies.

So expect governments to allow central banks to create accounts that let people move money more easily across borders, perhaps with an international form of digital currency. You should also expect them to find a way to regulate attempts by transnational corporations like Facebook to horn in on the business of money.