[00:00:00] Jordan Heath-Rawlings: The idea of money as I know it changing kind of terrifies me. I’m not one to stash bills under my mattress or anything. I do my banking exclusively online, and I don’t think I’ve touched cash more than a handful of times since the pandemic began. So it’s not the idea of not being able to touch my money that bothers me. It’s the idea of money becoming something fundamentally different from what it has always been. In theory to me, my money has always been a pile of cash, granted, a small pile of cash, that I could go and get in person at a bank anytime, if I really wanted to. What terrifies me about the future of money is this kind of stuff:
News Clip: Technologies like Bitcoin and its underlying framework, the blockchain, are going to fundamentally weave themselves into the fabric of our society.
News Clip 2: Think about a world without a monopoly on the transfer of value between [00:01:00] people.
News Clip 3: My big thing with blockchain is it can, it can literally overthrow America and China and Russia.
Jordan Heath-Rawlings: I only know two things about cryptocurrency. Number one, I know some kinds of it are really bad for the environment. And number two, I know that I don’t know enough about it to trust it, but cryptocurrency is not even the same thing as digital currency. Though I guess you could call the two competitors. Digital currency is being rolled out right now in countries around the world. And our own Bank of Canada is busy trying to figure out what a digital wallet for Canadians would look like and what sort of digital loonie would go inside it. And regardless of my unease about the future of money and maybe be yours too, this is happening. It’s just a question of when.
So what is digital currency and what makes it different from BitCoin and other cryptos? How different is this from my bank’s app, where I already pay my [00:02:00] bills and access my account? Why is the switch to digital currency becoming more and more urgent? And what happens if the Bank of Canada is too slow and someone else gets there first?
I’m Jordan Heath-Rawlings. This is The Big Story. Michael Doyle is a freelance reporter and journalist based in Toronto who examined the future of money in Canada for the Globe and Mail. Hi, Michael.
Michael Doyle: Hi Jordan.
Jordan Heath-Rawlings: Can you start us, off just because it’s such a useful way to think about this, at least I found it useful, by telling us the story of money on the island of Yap.
Michael Doyle: Certainly. Uh, Yap is a, a tiny island that is now a part of Micronesia in the South Pacific. And for hundreds of years, they had a very unusual form of currency. And that was these gigantic limestone rocks and the bigger they were, the more [00:03:00] valuable they were. And also of course, the bigger they were, the more difficult they were to actually physically exchange with each other. So, over time they, uh, just left the rocks where they were. And, uh, in order for them to figure out kind of who owned, which rock, uh, which note of currency, for lack of a better term, they created, uh, basically a form of a ledger in the form of a oral history of who owned each rock and how the rocks transacted from person to person on the island. And so that’s how they effectively did business. That’s how they exchanged, uh, goods and services hundreds of years.
Jordan Heath-Rawlings: Now tell me how that relates to where our use of money is heading.
Michael Doyle: Certainly, um, it’s actually a really great analogy because, in one example, it sort of captures a snapshot of what money has been for hundreds, if not thousands of years, since the, since we came up with the idea of money, however long ago, that was. Uh, and at the same time, it [00:04:00] also, it sort of shows us where technology is going to change money in the near future. So the question of what money is, is a really weird thing. It’s kind of like a philosophical rabbit hole you go down, but, uh, at its sort of core form money is trust, right? It’s-
Jordan Heath-Rawlings: Yeah.
Michael Doyle: This way for us to trust each other, uh, by creating this commonly shared value. And so the Yap stone became this sort of mode of trust for this, for the Islanders of Yap, but also because they used something similar to today’s distributed ledger technology that you hear about, uh, cryptocurrencies. They, they offloaded that trust onto this shared idea or shared knowledge base, uh, and every single person on the island knew who owned what or who, who had authority or who had ownership over, over each token. And that’s not dissimilar to, say, [00:05:00] Bitcoin today.
Jordan Heath-Rawlings: And I mean, the other thing that’s what struck me about it is you didn’t have to be carrying around the stones to have it understood that they belong to you, and that was your money, which kind of brings me to the way we understand, even if not Bitcoin, um, digital cash, because I was thinking about this the other day, when I read your piece. I don’t think I’ve touched cash more than twice since the beginning of the pandemic. And I, I don’t think I’m alone, either.
Michael Doyle: Yeah. Me either. And, um, it’s actually one of the reasons why I started thinking about this and it’s certainly one of the reasons why institutions like the Bank of Canada and other central banks around the world have really started to think about this since the onset of the pandemic. I, this has been something that’s been discussed for a number of years. The Bank of Canada has been researching, uh, digitizing the loonie for the better part of 10 years. I discovered in my reporting. But, uh, the pandemic has accelerated this. Some, some people I [00:06:00] spoke with said two to three years, others said five years, that the decline of the use of physical cash has, has been obviously exacerbated by, uh, the pressures of the pandemic.
In the first months, it was the fears that, uh, COVID would be transferred through the polymer notes that we use in Canada. And then subsequently it’s just something that we’ve gotten used to, you know, you think about how you transact on a daily basis, it’s mostly online now. I think that’s not probably going to go away after the pandemic. And even physical businesses have become really accustomed to, and I’ve sort of got their, their technology game, uh, leveled up over the last 15 or 16 months.
Jordan Heath-Rawlings: So when you say the Bank of Canada is working on how to digitize the loonie. My first question is what does that actually mean? And how is it different from me looking in my bank account and seeing I have X number of loonies in there?
Michael Doyle: The one thing we have to take into consideration, it’s something that I don’t think many of us probably [00:07:00] think about very often is that the percentage of actual physical cash that’s out there in the world is actually quite small. In Canada, it’s less than 5% of all of our wealth in this country, of all the money or the kind of the idea of money that moves around, everything that’s in our bank accounts and that we have in our pockets and savings and so on and so forth. Uh, less than 5% of that is actual physical cash. The rest of it for the most part is in terms of, uh, deposits within, uh, commercial banks. When we think about banks, we don’t really think about the Bank of Canada, the central bank, that’s responsible for our bank notes, but we think about commercial banks, the big six banks in Canada, your Royal Bank, Scotia Bank, et cetera.
So this concept would be radically different because, in effect it would be the Bank of Canada wresting back a little bit of control over, uh, over currency in the country. And it would, it would be this big evolution or revolution in finance in our [00:08:00] country, because I think it would actually, uh, allow for your average Canadian more access or more interaction with a digitized version of physical cash. Now we can get into how that is in, in a second, but certainly it’s kind of a scary prospect for commercial banks.
Jordan Heath-Rawlings: What would that look like if the Bank of Canada decided to do that? And I guess I’m trying to understand it a bit more deeply, but also, you know, do they have people designing this digital loonie, like would there be a picture attached to it? I know I’m asking dumb questions, but it seems very foreign to me.
Michael Doyle: No, yeah, no, it’s, this is a big question for everybody involved and I think you can actually look to other countries that have already started scheming this out. Sweden, their national bank, the Riksbank, they have gone through quite a bit of experimentation because basically no one in Sweden uses cash anymore. And China is probably the global leader right now. Their project, which has been called, uh, DCEP, is a [00:09:00] digitization of the Yuan. And they actually have it in the wild right now. You can actually use what they call digital wallet. It’s just basically an app on your phone. And in that context, uh, I’ve seen some, some screenshots of people’s phones. There is actually like a visual representation of the Yuan on your phone, but effectively that’s just sort of, uh, I think for as a creature comfort, if nothing else, but yeah, it would be essentially like not dissimilar, uh, in terms of experience from using Apple Pay or even, you know, transacting with your commercial bank app.
Jordan Heath-Rawlings: So where does the difference between digital money and cryptocurrency, where’s the line? I’m trying to understand, because I am a fairly tech savvy person and cryptocurrency, you know, fills me with confusion and dread, and I know it’s bad for the environment. And a lot of people [00:10:00] don’t think that it’s something the whole world can use long-term. This sounds a lot like it, but maybe not as bad. Can you explain it?
Michael Doyle: Yeah, I’d say that to start off by saying a central bank digital currency is probably going to look and function in some ways similarly to a cryptocurrency, but in other ways, very distinctly differently from. First things first, we can lead off with something that I think a lot of people are concerned about when you talk about cryptocurrencies, Bitcoin and Ethereum in particular. That they are using a lot of energy in order to, uh, in order to transact and that they are, I mean, I heard a stat recently. I believe it was a US Senate had a hearing last week on central bank digital currencies. And so the Bitcoin, one transaction uses the power that’s necessary to, to electrify a town for a month or something. It was like a ridiculous number.
Jordan Heath-Rawlings: Right.
Michael Doyle: Uh, [00:11:00] that will not be the case with the central bank digital currency. And the key reason for that, what Bitcoin does is it uses something called proof of work. So, there everybody around the world that is powering sort of the Bitcoin infrastructure is running what they call a node, which is effectively, you’re running an entire ledger, uh, on your own computer, helping with each and every transaction. And that’s the reason why there’s so much power that’s used up. So every single time there’s a transaction, all of these nodes around the world go off and have to kind of reorient the ledger or rewrite the ledger in order to show proof of work. So. That’s why there’s an incredible power drain when you’re talking about Bitcoin.
That won’t be the case with a, uh, central bank based digital currency. Because, from my understanding, it’s going to be more behind a, what they describe as a garden wall where, uh, the central bank itself or the central bank with a few [00:12:00] invited players, like say the commercial banks, will be running a, what they call a permission system or more of a closed, uh, ledger. Uh, that will be much more power efficient.
Jordan Heath-Rawlings: Where do the commercial banks come into this? You mentioned at the beginning that, you know, this is something the bank of Canada is looking at and the commercial banks would be a little worried, I guess, because this is technically the digital part of money is currently just all theirs. Right? Is this a competitor for them?
Michael Doyle: They could see it this way. They could definitely see, uh, the central bank taking a larger role and pulling a bit of the power and control away from these banks is a huge threat. And also it’s going to force them, I think, most importantly, to innovate and to hold themselves from the easy money that can be made through, uh, the payment system that [00:13:00] currently exists. Think about bank fees. Globally, I believe last year bank fees equaled, I think it was $1.9 trillion of profit for banks around the world, uh, which is an extraordinary sum of money and many economists that I spoke to, actually all the economists that I spoke to said that that money should be used elsewhere in our global economy on an annual basis and not being sort of sopped up by bank fees.
And of course, but of course these banks that love their profits are not going to want to let go of that. So they will see this potentially as a threat for sure. And it’s going to be a real careful dance on the part of central banks around the world. And in particular, the Bank of Canada, which has to deal with six, very large, very powerful banks and a lot of smaller players as well that are not going to want to give away all of that wealth and easy money. And they’re going to have to try to lure them into this as a [00:14:00] partnership.
Uh, I talked to, uh, the economist Campbell Harvey at Duke who’s, who’s actually, uh, uh, Canadian. He’s a Torontonian by birth and he’s, uh, somebody who’s studied, uh, decentralized finance for, for a long time and is considered a global expert on this. And he said that it’s effectively, we’re going to have to. Uh, ask commercial banks to spend more money in order to learn how to make less money, but that he said the alternative for them is going to be being obliterated in time because this technology is coming and this technology is going to change things whether they like it or not.
Jordan Heath-Rawlings: Let’s talk about what happens as this transition occurs. Since so far, this conversation has kind of made it seem inevitable. One of the things we’ve discussed on the show before is, you know, how the transition to digital anything, uh, can marginalize some people. And, you know, one of the first examples that comes to mind is [00:15:00] the restaurants and stores that began refusing cash at the beginning of the pandemic and how, for a lot of people who don’t have enough cash on hand to ever have a bank account, or who certainly can’t afford a smartphone that would include a digital wallet or Apple Pay, you know, this makes things inaccessible to them. And what do you do to overcome that obstacle when you’re trying to get a whole country or a whole global economy to make that move?
Michael Doyle: This is a real big question, because, and it’s something that the Bank of Canada is deeply concerned about, and I think they’re going to, they will hold off on releasing a central bank digital currency, or even beginning any kind of public testing until they’ve, they’ve, they’ve solved this problem, which is how do you do offline transactions? So in that covers a wide range of, of smaller problems.
Jordan Heath-Rawlings: Right.
Michael Doyle: You know, the big parts of Canada that don’t have reliable, uh, cell service or if you don’t have access to a smartphone, although I think it’s 80 plus [00:16:00] percent of Canadians have a smartphone at this point, so it’s pretty ubiquitous. But still there’s a solid, let’s say 15, 20% of people that do not have access to a smartphone. So how do you account for that? Uh, and there’s been some scheming in that regard. I believe the ideas that are being worked out right now in other parts of the world, Sweden being a primary example, China and other are looking at using a card. Um, basically very similar to a gift card or a, uh, like a bus card, like a card, that’s going to have an NFC scanner in it that’s going to be something that you can kind of load up and that can link with an account.
Jordan Heath-Rawlings: And so theoretically people without access to a smartphone or people who were heading out of network, which is a really good point because lots of people do go to the far-flung reaches and there are lots of stops along the way. They would either be given a card by the Bank of Canada or they would load up one of their own cards [00:17:00] with some money and take that with them? Is that how it would work?
Michael Doyle: Yeah. Presumably it would be that, uh, every Canadian would have free access to, to this offline system. So let’s say it’s a card system or, or some sort of really basic piece of technology, like in Sweden, they’re even looking at a very basic smartphones that they’re going to give to people. Say it’s something like that. Um, that you would have access to one of these, it would be mailed to you. You could go pick it up somewhere and that you can then, uh, load up your digital wallet for offline use. And, and basically it’s like, putting physical cash in your pocket, but it’s just all sitting on one card.
Jordan Heath-Rawlings: Here’s the thing I always have to do when we talk about the future of technology and where it’s going next, which is to play the apocalyptic cynic. Um, we’ve seen lots of instances more recently, uh, with major infrastructure being hacked or going offline at [00:18:00] inopportune times. There are solar events that can knock out, uh, internet and wifi access to large swaths of land. What happens when we put all our money into this system and it goes down?
Michael Doyle: This is a great question. And this is something that is being thought about with a great deal of care. And my understanding is that in order for a system to eventually go online and be used, it would need to have a number of fail safes. Uh, so when, when I described earlier the, um, the idea of a, uh, of a distributed ledger, uh, so multiple nodes with this same ledger around the world, uh, that Bitcoin uses, which is very handy, uh, and also creates all these fail safes. There would be a smaller version of that in play. If you were to set up, uh, this, this more kind of controlled permissioned decentralized ledger that the Bank of Canada would operate. So, but [00:19:00] that said it still doesn’t mean that it couldn’t potentially be hacked. Uh, although I suppose, you know, that that holds true for our current, uh, mostly digitized financial system right now, which from my understanding, based on talking to quite a few experts about this is a pretty, I mean, it’s a system that works, but it’s sort of like a hack together makeshift system. Uh, especially when you’re talking about cross border payments, it’s, it’s a bit messy right now. And I guess the hope is, is that there’ll be some sort of centralization, which I know is something that central banks around the world are now having conversations about, but yeah, security. And then of course, privacy are two huge questions.
Jordan Heath-Rawlings: So assuming that as we go forward, we answer those questions. And usually with these kinds of massive technological projects, we do, you’ve kind of alluded a couple of times to a timeline of a few years or five years. I’m not asking you to predict anything, but maybe just to close, [00:20:00] kind of lay out what the average Canadian who is now puzzled over the future of money, uh, could expect over the next decade, and like, how fast will this happen and where will it go?
Michael Doyle: I have been hearing everything from a couple of years to 10 years. Although the people that are sort of seemingly most plugged into this are saying that 10 years is far too late, uh, because there is a, a factor in all of this will definitely be competition and a digital currency will become a competitive entity, entity globally as well. There is definitely fear that, for example, China’s digital Yuan, if it gains momentum and, and, and a certain level of power globally, that we’ll start seeing it within Canada as a viable alternative. Same goes if the US were to develop a digital version of its currency as well, we could potentially see dollarization in Canada, which is something we feared for a long time, especially if you live close to the [00:21:00] border.
And then there’s kind of the boogeyman in the room is, is Facebook who have a private digital currency called Diem, which is the single biggest threat that the Bank of Canada sees. They have mentioned it number, a number of times that this is a big motivator for the Bank of Canada to, to get ahead on this technology, because otherwise in a few short years, Instead of the loonie, you and I could be using Diem. And it would make a lot more sense because you say you want to send a payment to the US, you wouldn’t be charged a fee for it because Facebook wouldn’t charge you the fee. You know, you wanna, you wanna, you wanna make some sort of other transaction that typically we would see fees charged and clawed away at our, our, our, our personal wealth every day. Uh, Facebook probably wouldn’t grab at those because Facebook’s not interested in making so much money off of fees, Facebook’s interested in our data.
So that is why I think we’re going to see this accelerate very quickly. [00:22:00] I wouldn’t be surprised if in the next couple of years we would see the Bank of Canada start a formal pilot project that they make public. And then I think the next stage is after that pilot project would be seeing it in the wild and being tested, say, uh, uh, one, one researcher I spoke to said that to expect it and perhaps, um, like a university town where you’re, where you have a very large concentrated young population, a lot of smartphones, a lot of interest in comfort with technology, a place like Halifax, Kingston, kind of one of these mid-size university cities in Canada, where they would do a, a more concentrated, uh, live test. And then from there, start rolling it out. Uh, so yeah, I wouldn’t be surprised if, if we see something in the next couple of years and then I think it will accelerate very quickly after that.
Jordan Heath-Rawlings: I hope they do it fast because I will literally take my cash out of the bank and stuff it in a mattress before I let it pass through Zuckerberg’s hands. I’m not joking.
[00:23:00] Michael Doyle: I know. And that is, that is a very real fear. It is something that deeply motivates the Bank of Canada. You can look at and their literature, you know, the, the, this is an organization that plays things really close to the chest, but in that context, they talk specifically about the threat of big tech firms developing a private currency. They want to maintain a certain level of, of sovereignty and, uh, uh, financial sovereignty. And I think that’s a good thing. And I think we should keep trust in our central banks, especially the Bank of Canada, because their mandate is to make sure that there’s, you know, that every Canadian is, has access to the economy. Um, and that’s something that commercial banks don’t have that mandate. Uh, Facebook certainly doesn’t have that mandate. So if there’s any, uh, if there’s any party to have trusted in this context, I’d say it’s the Bank of Canada.
Jordan Heath-Rawlings: Well, this is going to be fascinating now to watch it unfold and probably a little nerve wracking too. Michael, thank you for explaining this to us.
Michael Doyle: Thanks for having me.
[00:24:00] Jordan Heath-Rawlings: That was Michael Doyle. And that was The Big Story. For more from us head to thebigstorypodcast.ca. Find us on Twitter at @TheBigStoryFPN. Talk to us anytime via email, thebigstorypodcast, all one word, all lowercase, @rci.rogers.com [click here!]. And as you know, by now, we are in your favorite podcast player, in Apple or Google or Stitcher or Spotify or Amazon Music, or many, many others. Figure out which one works best for you. Figure out two or three of them and subscribe to us in all of them.
Thanks for listening. I’m Jordan Heath-Rawlings, we’ll talk tomorrow.
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