Cash here to stay despite shift to digital, says Bank of Canada governor
Bank of Canada governor Tiff Macklem does not foresee the dawn of a fully digital currency
The Governor of the Bank of Canada said on 7 October that he does not foresee the dawn of a fully digital currency.
Tiff Macklem told the New York-based thinktank Council on Foreign Relations that the pandemic has accelerated digitalisation and central banks must prepare for digital currencies, but “we’re not there yet”.
“I certainly can imagine that even if we were to have digital currencies, we would still have physical bank notes,” Macklem said.
Preparation for digitalisation of currency must include a focus on interoperability for efficient cross-border payments, he added. Macklem said the Bank of International Settlements was working on this issue including by setting up innovation hubs in the UK, Sweden, Hong Kong and Switzerland. The Canadian innovation hub will be in Toronto.
Macklem cautioned that a digital system would be at risk of “faster and more serious spillovers”.
“The IMF is doing a fair amount of work on the potential spillovers from the international system,” he said. “There are also financial stability issues, and if you have a digital currency could that, particularly in a stress period, compete with deposits of banks? And if you start to see deposits fly out of banks into digital currency, that could become destabilising to the financial system.”
Macklem said the G7 and Financial Stability Board are also examining stability issues. Such international cooperation is vital to increase benefits from digital currencies without creating “unintended consequences”.
Cracking the crypto business model
Moderator Roger Altman, the former deputy secretary of the US Treasury, also asked Macklem for his take on the various private sector cryptocurrencies that are currently trading.
“There are lots of crypto assets out there. There’s not really any cryptocurrency, there’s nothing that’s really being used in transactions as a digital currency. Maybe somebody will crack the business model, but it hasn’t really happened yet,” Macklem said.
Macklem was appointed to a seven-year term as governor of the Bank of Canada in June 2020. He first joined the bank in 1984, leaving to study for a doctorate and returning in 1989. He then joined the Canadian government as an associate deputy minister during the global financial crisis, but returned from 2010 until 2014 as the bank’s senior deputy governor.
In a news conference with reporters after his 7 October speech, Macklem said he would be heading to Washington, DC next week for his first in-person international trip. He expects inflation, the global supply chain and shipping bottlenecks to figure heavily in meetings.
Macklem added: “There’s still considerable excess supply in the economy. There is still capacity for the economy to grow. There is capacity to meet that demand. What’s holding it back is largely these supply constraints which are related to the unique circumstances of the pandemic.”