Category Archives: Payments

Governor Lael Brainard: Private Money and Central Bank Money as Payments Go Digital: an Update on CBDCs

Technology is driving dramatic change in the U.S. payments system, which is a vital infrastructure that touches everyone.1 The pandemic accelerated the migration to contactless transactions and highlighted the importance of access to safe, timely, and low-cost payments for all. With technology platforms introducing digital private money into the U.S. payments system, and foreign authorities exploring the potential for central bank digital currencies (CBDCs) in cross-border payments, the Federal Reserve is stepping up its research and public engagement on CBDCs. As Chair Powell discussed last week, an important early step on public engagement is a plan to publish a discussion paper this summer to lay out the Federal Reserve Board’s current thinking on digital payments, with a particular focus on the benefits and risks associated with CBDC in the U.S. context.2

Sharpening the Focus on CBDCs

Four developments—the growing role of digital private money, the migration to digital payments, plans for the use of foreign CBDCs in cross-border payments, and concerns about financial exclusion—are sharpening the focus on CBDCs.

First, some technology platforms are developing stablecoins for use in payments networks.3 A stablecoin is a type of digital asset whose value is tied in some way to traditional stores of value, such as government-issued, or fiat, currencies or gold. Stablecoins vary widely in the assets they are linked to, the ability of users to redeem the stablecoin claims for the reference assets, whether they allow unhosted wallets, and the extent to which a central issuer is liable for making good on redemption rights. Unlike central bank fiat currencies, stablecoins do not have legal tender status. Depending on underlying arrangements, some may expose consumers and businesses to risk. If widely adopted, stablecoins could serve as the basis of an alternative payments system oriented around new private forms of money. Given the network externalities associated with achieving scale in payments, there is a risk that the widespread use of private monies for consumer payments could fragment parts of the U.S. payment system in ways that impose burdens and raise costs for households and businesses. A predominance of private monies may introduce consumer protection and financial stability risks because of their potential volatility and the risk of run-like behavior. Indeed, the period in the nineteenth century when there was active competition among issuers of private paper banknotes in the United States is now notorious for inefficiency, fraud, and instability in the payments system.4 It led to the need for a uniform form of money backed by the national government.

Second, the pandemic accelerated the migration to digital payments. Even before the pandemic, some countries, like Sweden, were seeing a pronounced migration from cash to digital payments.5 To the extent that digital payments crowd out the use of cash, this raises questions about how to ensure that consumers retain access to a form of safe central bank money. In the United States, the pandemic led to an acceleration of the migration to digital payments as well as increased demand for cash. While the use of cash spiked at certain times, there was a pronounced shift by consumers and businesses to contactless transactions facilitated by electronic payments.6 The Federal Reserve remains committed to ensuring that the public has access to safe, reliable, and secure means of payment, including cash. As part of this commitment, we must explore—and try to anticipate—the extent to which households’ and businesses’ needs and preferences may migrate further to digital payments over time.

Third, some foreign countries have chosen to develop and, in some cases, deploy their own CBDC. Although each country will decide whether to issue a CBDC based on its unique domestic conditions, the issuance of a CBDC in one jurisdiction, along with its prominent use in cross-border payments, could have significant effects across the globe. Given the potential for CBDCs to gain prominence in cross-border payments and the reserve currency role of the dollar, it is vital for the United States to be at the table in the development of cross-border standards.

Finally, the pandemic underscored the importance of access to timely, safe, efficient, and affordable payments for all Americans and the high cost associated with being unbanked and underbanked. While the large majority of pandemic relief payments moved quickly via direct deposits to bank accounts, it took weeks to distribute relief payments in the form of prepaid debit cards and checks to households who did not have up-to-date bank account information with the Internal Revenue Service. The challenges of getting relief payments to these households highlighted the benefits of delivering payments more quickly, cheaply, and seamlessly through digital means.

Policy Considerations
In any assessment of a CBDC, it is important to be clear about what benefits a CBDC would offer over and above current and emerging payments options, what costs and risks a CBDC might entail, and how it might affect broader policy objectives. I will briefly discuss several of the most prominent considerations.

Preserve general access to safe central bank money
Central bank money is important for payment systems because it represents a safe settlement asset, allowing users to exchange central bank liabilities without concern about liquidity and credit risk. Consumers and businesses don’t generally consider whether the money they are using is a liability of the central bank, as with cash, or of a commercial bank, as with bank deposits. This is largely because the two are seamlessly interchangeable for most purposes owing to the provision of federal deposit insurance and banking supervision, which provide protection for consumers and businesses alike. It is not obvious that new forms of private money that reference fiat currency, like stablecoins, can carry the same level of protection as bank deposits or fiat currency. Although various federal and state laws establish protections for users, nonbank issuers of private money are not regulated to the same extent as banks, the value stored in these systems is not insured directly by the Federal Deposit Insurance Corporation, and consumers may be at risk that the issuer will not be able to honor its liabilities. New forms of private money may introduce counterparty risk into the payments system in new ways that could lead to consumer protection threats or, at large scale, broader financial stability risks.

In contrast, a digital dollar would be a new type of central bank money issued in digital form for use by the general public. By introducing safe central bank money that is accessible to households and businesses in digital payments systems, a CBDC would reduce counterparty risk and the associated consumer protection and financial stability risks.

Improve efficiency
One expected benefit is that a CBDC would reduce or even eliminate operational and financial inefficiencies, or other frictions, in payments, clearing, and settlement. Today, the speed by which consumers and businesses can access the funds following a payment can vary significantly, up to a few days when relying on certain instruments, such as a check, to a few seconds in a real-time payments system. Advances in technology, including the use of distributed ledgers and smart contracts, may have the potential to fundamentally change the way in which payment activities are conducted and the roles of financial intermediaries and infrastructures. The introduction of a CBDC may provide an important foundation for beneficial innovation and competition in retail payments in the United States.

Most immediately, we are taking a critical step to build a strong foundation with the introduction of the FedNowSM Service, a new instant payments infrastructure that is scheduled to go into production in two years. The FedNow Service will enable banks of every size and in every community across America to provide safe and efficient instant payment services around the clock, every day of the year. Through the banks using the service, consumers and businesses will be able to send and receive payments conveniently, such as on a mobile device, and recipients will have full access to funds immediately.

Promote competition and diversity and lower transactions costs
Today, the costs of certain retail payments transactions are high and not always transparent to end users.7 Competition among a diversity of payment providers and payment types has the potential to increase the choices available to businesses and consumers, reduce transactions costs, and foster innovation in end-user services, although it could also contribute to fragmentation of the current payments system. By providing access to a digital form of safe central bank money, a CBDC could provide an important foundation on which private-sector competition could flourish.

Reduce cross-border frictions
Cross-border payments, such as remittances, represent one of the most compelling use cases for digital currencies. The intermediation chains for cross-border payments are notoriously long, complex, costly, and opaque. Digitalization, along with a reduction in the number of intermediaries, holds considerable promise to reduce the cost, opacity, and time required for cross-border payments. While the introduction of CBDCs may be part of the solution, international collaboration on standard setting and protections against illicit activity will be required in order to achieve material improvements in cost, timeliness, and transparency.8

We are collaborating with international colleagues through the Bank for International Settlements, Committee on Payments and Market Infrastructures, and the G7 to ensure the U.S. stays abreast of developments related to CBDC abroad. We are engaging in several international efforts to improve the transparency, timeliness, and cost-effectiveness of cross-border payments. It will be important to be engaged at the outset on the development of any international standards that may apply to CBDCs, given the dollar’s important role as a reserve currency.

Complement currency and bank deposits
A guiding principle for any payments innovation is that it should improve upon the existing payments system. Consumers have access to reliable money in the forms of private bank accounts and central bank issued currency, which form the underpinnings of the current retail payments system. The design of any CBDC should complement and not replace currency and bank accounts.

Preserve financial stability and monetary policy transmission
The introduction of a CBDC has the potential to have wide-reaching effects, and there are open questions about how CBDC could affect financial stability and monetary policy transmission. Some research indicates that the introduction of a CBDC might raise the risk of a flight out of deposits at weak banks in favor of CBDC holdings at moments of financial stress.9 Other research indicates that the increase in competition could result in more attractive terms on transactions accounts and an overall increase in banking system deposits.10 Banks play a critical role in credit intermediation and monetary policy transmission, as well as in payments. Thus, the design of any CBDC would need to include safeguards to protect against disintermediation of banks and to preserve monetary policy transmission more broadly. While it is critical to consider the ways in which a CBDC could introduce risks relative to the current payments system, it may increase resilience relative to a payments system where private money is prominent.

Protect privacy and safeguard financial integrity
The design of any CBDC would need to both safeguard the privacy of households’ payments transactions and prevent and trace illicit activity to maintain the integrity of the financial system, which will require the digital verification of identities. There are a variety of approaches to safeguarding the privacy of payments transactions while also identifying and preventing illicit activity and verifying digital identities. Addressing these critical objectives will require working across government agencies to assign roles and responsibilities for preventing illicit transactions and clearly establishing how consumer financial data would be protected.

Increase financial inclusion
Today 5.4 percent of American households lack access to bank accounts and the associated payment options they offer, and a further 18.7 percent were underbanked as of 2017.11 The lack of access to bank accounts imposes high burdens on these households, whose financial resilience is often fragile. At the height of the pandemic, the challenges associated with getting relief payments to hard-to-reach households highlighted that it is important for all households to have transactions accounts. The Federal Reserve’s proposals for strengthening the Community Reinvestment Act emphasize the value of banks providing cost-free, low-balance accounts and other banking services targeted to underbanked and unbanked communities.12 And a core goal of FedNow is to provide ubiquitous access to an instant payments system via depository institutions.

CBDC may be one part of a broader solution to the challenge of achieving ubiquitous account access.13 Depending on the design, CBDC may have the ability to lower transaction costs and increase access to digital payments. In emergencies, CBDC may offer a mechanism for the swift and direct transfer of funds, providing rapid relief to those most in need. A broader solution to financial inclusion would also need to address any perceived barriers to maintaining a transaction account, along with the need to maintain up-to-date records on active accounts to reach a large segment of the population.14

To explore these broader issues, the Federal Reserve is undertaking research on financial inclusion. The Federal Reserve Bank of Atlanta is launching a public–private sector collaboration as a Special Committee on Payments Inclusion to ensure that cash-based and vulnerable populations can safely access and benefit from digital payments.15 This work is complemented by a new Federal Reserve Bank of Cleveland initiative to explore the prospects for CBDC to increase financial inclusion. The initiative will identify CBDC design features and delivery approaches focused on expanding access to individuals who do not currently use traditional financial services.

Technology Considerations
Multidisciplinary teams at the Federal Reserve are investigating the technological and policy issues associated with digital innovations in payments, clearing, and settlement, including the benefits and risks associated with a potential U.S. CBDC. For example, the TechLab group at the Federal Reserve Board is performing hands-on research and experimentation on potential future states of money, payments, and digital currencies. A second group, the Digital Innovations Policy program, is considering a broad range of policy issues associated with the rise of digital payments, including the potential benefits and risks associated with CBDC.

To deepen our research on the technological design of a CBDC, the Federal Reserve Bank of Boston is partnering with Massachusetts Institute of Technology’s (MIT) Digital Currency Initiative on Project Hamilton to build and test a hypothetical digital currency platform using leading edge technology design options.16 This work aims to research the feasibility of the core processing of a CBDC, while remaining agnostic about a range of policy decisions. MIT and the Boston Fed plan to release a white paper next quarter that will document the ability to meet goals on throughput of geographically dispersed transactions with core processing and create an open source license for the code. Subsequent work will explore how addressing additional requirements, including resiliency, privacy, and anti-money-laundering features, will impact core processing performance and design.

Banking Activities
Research and experimentation are also occurring at supervised banking institutions to explore new technology to enhance their own operations and in response to demands from their clients for services such as custody of digital assets. While distributed ledger technology may have the potential to improve efficiencies, increase competition, and lower costs, digital assets pose heightened risks such as those related to Bank Secrecy Act/anti-money laundering, cybersecurity, price volatility, privacy, and consumer compliance. The Federal Reserve is actively monitoring developments in this area, engaging with the industry and other regulators, and working to identify any regulatory, supervisory, and oversight framework gaps. Given that decisions at one banking agency can have implications for the other agencies, it is important that regulators work together to develop common approaches to ensure that banks are appropriately identifying, monitoring, and managing risks associated with digital assets.

Public Engagement
In light of the growing role of digital private money in the broader migration to digital payments, the potential use of foreign CBDCs in cross-border payments, and the importance of financial inclusion, the Federal Reserve is stepping up its research and public engagement on a digital version of the U.S. dollar. Members of Congress and executive agencies are similarly exploring this important issue. As noted above, to help inform these efforts, the Federal Reserve plans to issue a discussion paper to solicit public comment on a range of questions related to payments, financial inclusion, data privacy, and information security, with regard to a CBDC in the U.S. context.17 The Federal Reserve remains committed to ensuring a safe, inclusive, efficient, and innovative payments system that works for all Americans.


1. I am grateful to Alexandra Fernandez, Sonja Danburg, David Mills, and David Pope of the Federal Reserve Board for their assistance in preparing this text. These are my own views and do not necessarily reflect those of the Federal Reserve Board or the Federal Open Market Committee. Return to text

2. See Jerome Powell, “Federal Reserve Chair Jerome H. Powell Outlines the Federal Reserve’s Response to Technological Advances Driving Rapid Change in the Global Payments Landscape,” Board of Governors of the Federal Reserve System news release, May 20, 2021. Return to text

3. See Lael Brainard, “The Digitalization of Payments and Currency: Some Issues for Consideration,” remarks at the Symposium on the Future of Payments, Stanford University, California, February 5, 2021. Return to text

4. See, for instance, Joshua R. Greenberg, Bank Notes and Shinplasters: The Rage for Paper Money in the Early Republic (Philadelphia: University of Pennsylvania Press, 2020). Return to text

5. Codruta Boar and Róbert Szemere, “Payments go (even more) digital” (Basel: Bank for International Settlements, January 2021). Return to text

6. Kelsey Coyle, Laura Kim, and Shaun O’Brien, Consumer Payments and the COVID-19 Pandemic: The Second Supplement to the 2020 Findings from the Diary of Consumer Payment Choice (San Francisco: Federal Reserve Bank of San Francisco, February 2021). Return to text

7. Marie-Hélène Felt, Fumiko Hayashi, Joanna Stavins, and Angelika Welte, Distributional Effects of Payment Card Pricing and Merchant Cost Pass-through in the United States and Canada (PDF), Federal Reserve Bank of Boston Research Department Working Papers No. 20-13 (Boston: FRB Boston, 2020). Return to text

8. See Bank for International Settlements, Committee on Payments and Market Infrastructures, Enhancing cross-border payments: building blocks of a global roadmap Stage 2 report to the G20 (PDF) (Basel: BIS, July 2020); and Financial Stability Board, Enhancing Cross-border Payments: Stage 3 Roadmap (PDF) (Washington: FSB, October 13, 2020). Return to text

9. Christian Pfister, Monetary Policy and Digital Currencies: Much Ado about Nothing? (PDF) Banque de France Working Paper 642 (Paris: Banque de France, 2017). Return to text

10. John Barrdear and Michael Kumhof, The Macroeconomics of Central Bank Issued Digital Currencies, Bank of England Working Paper No. 605 (London: BOE, July 18, 2016), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2811208. Return to text

11. Federal Deposit Insurance Corporation, How America Banks: Household Use of Banking and Financial Services (Washington: FDIC, October 19, 2020); and Federal Deposit Insurance Corporation, FDIC National Survey of Unbanked and Underbanked Households (Washington: FDIC, 2017). Return to text

12. See, for instance the Bank On National Account Standards, https://2wvkof1mfraz2etgea1p8kiy-wpengine.netdna-ssl.com/wp-content/uploads/2020/10/Bank-On-National-Account-Standards-2021-2022.pdf. Return to text

13. See Jesse Leigh Maniff, Inclusion by Design: Crafting a Central Bank Digital Currency to Reach All Americans, (PDF) Payments System Research Briefing, Federal Reserve Bank of Kansas City (Kansas City: FRB Kansas, December 2, 2020); and John Crawford, Lev Menand, and Morgan Ricks, “FedAccounts: Digital Dollars,” (PDF) George Washington Law Review, Vol. 89, p. 113, January 28, 2021. Return to text

14. For more information, see the Federal Reserve Community Reinvestment Act Proposed Rulemaking at https://www.federalreserve.gov/consumerscommunities/community-reinvestment-act-proposed-rulemaking.htmReturn to text

15. Federal Reserve Bank of Atlanta, “New Committee to Advance Safe, Efficient, Inclusive Payments,” news release, May 12, 2021. Return to text

16. See Eric Rosengren, “Central Bank Perspectives on Central Bank Digital Currencies,” remarks at the panel discussion of the Program on International Financial Systems, Harvard Law School, May 12, 2021, ; Jim S. Cunha, “Boston Fed’s Digital Dollar Research Project Honors 2 Hamiltons, Alexander and Margaret,” Federal Reserve Bank of Boston, February 25, 2021; and Lael Brainard, “An Update on Digital Currencies,” remarks at the Federal Reserve Bank of San Francisco Innovation Office Hours, August 13, 2020. Return to text

17. See Jerome Powell, “Federal Reserve Chair Jerome H. Powell Outlines the Federal Reserve’s Response to Technological Advances Driving Rapid Change in the Global Payments Landscape,” Board of Governors of the Federal Reserve System news release, May 20, 2021.

Panetta: A digital euro to meet the expectations of Europeans

Introductory remarks by Fabio Panetta, Member of the Executive Board of the ECB, at the ECON Committee of the European Parliament

Frankfurt am Main, 14 April 2021

Madam Chair, honourable members of the Committee on Economic and Monetary Affairs,

Let me start by thanking you for inviting me to report on the outcome of the ECB’s public consultation on a digital euro. We are publishing our analysis of the responses we received on our website today.

A digital euro can only be successful if it meets the needs and expectations of European citizens. This is why our consultation will provide valuable input for the Eurosystem’s decision – this summer – on whether we should start a digital euro project. The consultation will also inform future work on the design of a digital euro if a project is launched.

For the participants in the public consultation, the most important features of a digital euro are privacy, security and broad usability. In my remarks today, I will discuss how we can meet their expectations. But first let me share with you the main findings from our consultation.

Main findings from the ECB’s public consultation

We received more than 8,000 replies, an all-time record for ECB public consultations. The overwhelming majority of the responses came from citizens, while 460 were from businesses and professionals in the payments sector.

The consultation was open to everyone, and participants contributed on their own initiative. This means that the sample of respondents is not statistically representative of the European population. Nonetheless, the breadth and depth of the responses offer valuable insights.

Our report discusses the results in detail. Today I will therefore simply highlight the key findings.

Privacy was considered to be the most important feature of a digital euro in about 43% of replies. Nevertheless, respondents recognise the need for the digital euro to have features that prevent illicit activities like money laundering or terrorist financing. Other important characteristics include the possibility of using the digital euro for secure payments (ranked first by 18% of the respondents), throughout the entire euro area (emphasised by 11% of the respondents), without additional costs and offline (underlined by 9% and 8% of the respondents respectively).

Citizens and professionals agree that a digital euro should be integrated into existing payment infrastructures. The vast majority of respondents believe that banks, payment institutions and other intermediaries have an important role to play in providing services related to a digital euro. They suggest, for example, that a digital euro should be integrated with mobile and online payments and banking services. They expect the additional services that would build on the basic payment functionalities of a digital euro to trigger innovation and efficiency. A sizeable share of participants also highlight that the digital euro should make cross-border payments faster and less costly. And more than half of respondents are willing to test, adopt or contribute to the design of a digital euro in order to make it an effective means of payment.

Privacy first

As I have already mentioned, privacy emerges as the most important feature of a digital euro. Protecting users’ personal data and ensuring a high level of confidentiality will therefore be a priority in our work, so that the digital euro can help maintain trust in payments in the digital age.

At the ECB we started to explore privacy in digital payments early in our work on a central bank digital currency, and we will continue to do so through further analyses. The results of our technical experimentations are available on our website and summarised in to my remarks today.

Let me emphasise, first of all, that a digital euro would in fact increase privacy in digital payments. As a public and independent institution, the ECB has no interest in monetising or even collecting users’ payment data. A digital euro would therefore allow people to make payments without sharing their data with third parties, other than what is required by regulation. This differs from private payments, where services are generally offered in exchange for personal data that are then used for commercial purposes.

Privacy is an important prerogative because it influences people’s personal lives and fundamental rights. It must nonetheless be carefully assessed against other important considerations in the general interest. Digital euro payments could guarantee different degrees of privacy, involving different trade-offs with other policy and regulatory objectives such as the need to combat illicit activities. Such trade-offs also characterise traditional means of payment, which provide various degrees of privacy, ranging from anonymity for cash payments to full disclosure for digital transactions that require documentary verification and monitoring of operations.

In theory, digital euro payments could be anonymous if users’ identities were not verified when they access digital euro services. But this anonymity would provide fertile ground for unlawful activities and could prevent compliance with regulations on anti-money laundering and combating the financing of terrorism.

Anonymity would also prevent limits being imposed on the use of digital euro when necessary – for example to safeguard financial stability and banking intermediation by preventing excessive capital flows or excessive use of the digital euro as a form of investment.

Even if users have to identify themselves when they first access digital euro services, different degrees of privacy can still be maintained for their payments. Certain transactions could be conducted without the payment details being shared with third parties. For example, if low-value offline payments were offered, they could be settled between the payer and payee without any data being shared with intermediaries.

For electronic and large-value transactions, details should be available to intermediaries. But privacy enhancing techniques could still ensure a high level of privacy. For example, the identity of users could be kept separate from payment data, allowing only financial intelligence units to obtain this information and identify the payer and payee when suspicious activity is detected.

Our preliminary experimentation on a digital euro is showing promising results on how technology can be used to protect user privacy without relaxing standards against illicit activities.

But there could also be cases where transparency of payments would be in the interest of consumers. For example, it may be necessary to verify a payment after it has been conducted to prove that the transaction took place or if a refund is required. In any event, cash would remain available alongside a digital euro. Consumers would be able to continue to make anonymous payments with banknotes, if they wish to do so.

We will take all these factors into consideration as we continue our work and seek the views of stakeholders to find the right balance. This includes maintaining a close dialogue on the implications of potentially issuing a digital euro and the framework that would be needed to do so with the legislators and institutions that set the rules on privacy and data protection.

A digital euro as a new and secure payment solution

The security and usability of the digital euro are also particularly important for prospective users.

Electronic payments are becoming increasingly popular, so a digital euro would ensure that sovereign money – a public good that central banks have been offering to citizens for centuries – remains available in the digital era. People could have full confidence in both the digital euro and cash, since they are both backed by a credible central bank. This is a unique feature that no private payment scheme can provide.

Let me emphasise, once again, that a digital euro would not mean the end of cash. It would complement cash, not replace it. In doing so, a digital euro would contribute to a more diverse payments landscape, giving people greater choice in how they pay. This is also why the digital euro cannot and will not be a tool used to impose negative remuneration on money. If digital euro holdings were to be remunerated, the remuneration of individuals’ holdings for basic retail use would not go below zero. And effective choices on the design of a digital euro would eliminate risks to financial stability and banking intermediation.

A digital euro would encourage further innovation and digitalisation in retail payments. Supervised intermediaries such as banks and payment institutions could build on the digital euro to offer additional services to end users. Respondents to our consultation expect the digital euro to foster the provision of services that add value, like those covered by the revised Payment Services Directive and those that could offer the possibility of linking a payment to an external condition.

We are currently focusing on domestic needs in the euro area. But a digital euro could also help to address inefficiencies in cross-currency and cross-border payments. We are working with other major central banks to reap the potential benefits of digital currencies at the global level. We want to gain a better understanding of the implications of different types of central bank digital currencies while controlling the possible risks to both domestic and foreign economies.

Conclusion

Let me conclude. The record level of participation in our public consultation and the willingness of citizens and professionals to support a digital euro are encouraging. Their responses show the high expectations that prospective users have for a digital euro and provide valuable input for our work.

We are treating this matter with priority and will move as rapidly as possible. But we also need to take the time to do it right. In the coming months, the ECB’s Governing Council will decide whether to start a formal investigation phase on a digital euro.

In such a phase, we would carefully analyse possible design options and user requirements as well as the conditions under which financial intermediaries could provide front-end services built on a digital euro. We expect this analysis to take around two years.

At the end of the investigation, the Governing Council would take a decision on the design and on whether to move to the implementation of user requirements. This phase, which would take several years, would see the development of integrated services, testing and possible live experimentation of a digital euro.

Only at the end of this process would the Governing Council be able to decide whether or not to launch a digital euro. We will do our best to ensure that a digital euro meets the needs and expectations of Europeans.

But it can only be a common European enterprise. The alignment of European authorities and institutions, mindful of their respective mandates and independence, will be key if a digital euro is to be accepted. I am therefore pleased to see that this Committee welcomed our work in its recent resolutions on the ECB Annual Report and the international role of the euro.

As co-legislators and representatives of Europeans, you have a fundamental role to play in the discussions on the framework that would be needed to issue a digital euro. This is why I very much appreciate exchanges like the one today.

Jerome H Powell: Closing remarks – “Pushing the frontiers of payments: towards faster, cheaper, more transparent and more inclusive cross border payments”

Speech (via prerecorded video) by Mr Jerome H Powell, Chair of the Board of Governors of the Federal Reserve System, at “Pushing the frontiers of payments: towards faster, cheaper, more transparent and more inclusive cross border payments”, a conference hosted by the Committee on Payments and Market Infrastructures, Basel, Switzerland, 18 March 2021.

I would like to thank Sir Jon Cunliffe and the Committee on Payments and Market Infrastructures (CPMI) for inviting me to close out the first day of this conference on pushing the frontiers of payments.

Last year, the Group of Twenty (G-20) asked the Financial Stability Board (FSB) to coordinate the development of a roadmap on how the global community could enhance cross-border payments. It has long been acknowledged that the existing system, while safe and dependable, suffers from frictions, including processes that make it difficult to comply with anti-money-laundering and countering-terrorist-financing requirements, difficulty in managing payments across time zones, and, in certain areas, a reliance on outdated technology. Moreover, these frictions contribute to higher costs for cross-border transactions.

As with many aspects of life these days, the COVID-19 pandemic has shined a light on the less efficient areas of our current payment system and accelerated the desire for improvement and digitalization. Even before the pandemic, advancements in the private sector served as a catalyst to get the attention of consumers and to prompt more engagement by the public sector.

The goal of the FSB roadmap is simple-to create an ecosystem for cross-border payments that is faster, cheaper, more transparent, and more inclusive. A year into the process, I am encouraged that we are making meaningful progress. The stage 3 report released in October laid out a practical set of steps for moving ahead on the 19 building blocks that will bring about an improved system.1

Indeed, the themes discussed in the four sessions of the conference today correspond well to approaches described in the building blocks. The title of the first panel sets up a choice between “improving existing rails or laying new tracks.” As the roadmap makes clear, one of the keys to moving forward will be doing both-improving the existing system where we can while also evaluating the potential of and the best uses for emerging technologies. As an example, the Federal Reserve is working to improve the current system through the introduction of instant or fast payments via the FedNow Service.2 The service will be designed to maintain uninterrupted processing-24 hours a day, 7 days a week, 365 days a year-with security features that will ensure payment integrity and data security. The target launch date is sometime in 2023.*

The Federal Reserve is also doing its part to examine the role of new technologies. Experiments with central bank digital currencies (CBDCs) are being conducted at the Board of Governors, as well as complementary efforts by the Federal Reserve Bank of Boston in collaboration with researchers at MIT. In addition, a recent report from the Bank for International Settlements and a group of seven central banks, which includes the Fed, assessed the feasibility of CBDCs in helping central banks deliver their public policy objectives.3 Relevant to today’s topic, one of the three key principles highlighted in the report is that a CBDC needs to coexist with cash and other types of money in a flexible and innovative payment system.

Improvements in the global payments system will come not just from the public sector, but from the private sector as well. As today’s second panel, “Of Lions and Unicorns,” described, the private sector has the experience and expertise to develop consumer-facing infrastructure that improves and simplifies how the public engages with the financial system. Digitalization of financial services, combined with an improved consumer experience, can help increase financial inclusion, particularly in countries or areas with a large unbanked population.

And the last two panels of the day, “Addressing Legal Barriers to Cross-Border Payments” and “Harmonised Data to Oil the Cross-Border Payments Machinery,” highlight that improving the system must be a collaborative effort. By definition, cross-border payments involve multiple jurisdictions. So it will only be through countries working together, via all of the international forums-the Group of Seven, the G-20, the CPMI, the FSB, and others-that solutions will be possible.

And, finally, it is only by engaging all stakeholders-policymakers, private-sector participants, and academia-as this conference is doing, that we will achieve the improved payments ecosystem we are striving toward.

The COVID crisis has brought into even sharper focus the need to address the limitations of our current arrangements for cross-border payments. And as this conference amply demonstrates, despite the challenges of this last year, we still have been able to make important progress. I again thank the CPMI and Jon Cunliffe for their leadership and look forward to working together as we improve these payments for businesses and individuals alike.

* This sentence was updated after publication: the phrase “sometime in late 2023 or 2024” was updated to “sometime in 2023”. 


1  See Financial Stability Board (2020), Enhancing Cross-Border Payments: Stage 3 Roadmap (PDF) (Basel, Switzerland: FSB, October). 

2  See Board of Governors of the Federal Reserve System (2020), “Federal Reserve Announces Details of New 24x7x365 Interbank Settlement Service with Clearing Functionality to Support Instant Payments in the United States,” press release, August 6.

3 See Bank for International Settlements (2020), “Central Banks and BIS Publish First Central Bank Digital Currency (CBDC) Report Laying Out Key Requirements,” press release, October 9. 

Burkhard Balz: Central bank digital currencies – the future of money?

Speech by Mr Burkhard Balz, Member of the Executive Board of the Deutsche Bundesbank, at the American Council on Germany, virtual event, 10 February 2021.

1 Introduction – Central Bank Money

Dear Steve,
Ladies and gentlemen,

I am delighted to have the opportunity to talk to you about one of the most exciting topics facing central banks today:

The future of money. Do we need other forms of money beside the ones we already have? And do we need other forms of central bank money? Should banks’ deposits with the central bank be tokenised? Should banknotes become digital?

There are many questions surrounding “central bank digital currencies” (CBDC). And we still have to find the right answers. But one thing is certain:  central banks around the world have undertaken tremendous efforts to assess the potential and investigate the opportunities of CBDC.

Just recently, the Bank for International Settlement (BIS) published its third survey amongst central banks worldwide. The survey shows a shift from mainly analytical work towards technical experimentation. More than 60% of central banks are engaged in practical experimental work.1

It is clear, then, that even more headway has been made in exploring central bank digital currencies over the past year. On the one hand, the BIS predicts that central banks representing a fifth of the world’s population will issue a general purpose CBDC in the next three years. On the other, a widespread roll out of CBDCs seems some way off. And there are good reasons for this. Because CBDC is a game changer – with potential benefits, but also with a number of challenges.

Central bank digital currencies promise to combine the improved efficiency of their digital form with the safety provided by a central bank in a single means of payment.

However, central bank digital currency would be a third form of central bank money, alongside cash and bank reserves. Introducing a new form of central bank money such as this could have profound impact on the financial system, especially if it is not only available to banks, but instead, like cash today, to the general public. If not properly thought through, such an intervention may lead to unintended consequences.

Today, I would like to outline to you the areas that I believe we need to tackle in order to create a safe, efficient and future-proof currency. But let me start with three trends we are currently observing: digitalisation, declining cash usage and the emergence of new forms of money.

2 Trends in payments

Trend 1: Digitalisation

Our economy is growing more digital by the day. Business processes are becoming increasingly automated and interdependent. Complex value chains arise. The “Internet of Things” enables machine-to-machine communication. E-commerce and online services of all kinds are about to experience an enormous uptake due to the pandemic. The pace of digitalisation has probably never been faster than today. These developments are increasingly calling for a safe and efficient settlement asset which can be seamlessly integrated into almost any kind of business process. 

Trend 2: Declining use of cash

Parallel to this, we can see that the use of cash is waning, even in Germany. The current pandemic has boosted not only the use of credit and debit cards, but contactless payments, in particular. 

In a recently conducted survey on payment behaviour in Germany during the coronavirus pandemic, we found out that the share of cash transactions has fallen from 74% to 60% over the last three years.2 Admittedly, it remains to be seen whether the current behaviour also persists in the post-coronavirus period. But what we are currently seeing is quite a considerable change for a country which is strongly accustomed to paying in cash.

Trend 3: Emerging means of payments other than €

Another trend is the emergence of new forms of digital means of payments. These can be central bank digital currencies issued by foreign central banks as well as privately issued means of payment such as stablecoins. At the moment, these alternative means of payment are still in the development or testing phase. However, given the speed at which technology is developing, their widespread adoption might be far less off than we think. Should these forms of money become widely used as a medium of exchange or store of value in the euro area, significant implications could arise: for the role of the euro or the payment industry, and consequently also for financial stability. 

3 Central banks need to be prepared

The three trends I have just outlined highlight that, if the payments ecosystem is going to expand, central banks need to be prepared.

As highlighted in the report by the BIS and seven central banks, central banks need to be in a position to make an informed judgment when it comes to the decision on a central bank digital currency.3

Any dedicated central bank digital currency should be designed carefully. Possible advantages such as safety and efficiency improvements in everyday payments, productivity gains by promoting money which could be used in programmable environments, or the availability of new services must clearly outweigh the potential risks with regard to monetary policy or financial stability. In any case, it must be properly designed so as to mitigate all of those risks.

The Eurosystem is taking a comprehensive approach to addressing these challenges. As part of a high-level Eurosystem task force, my colleagues and I identified possible scenarios that would require the issuance of a digital euro and published them last October in the ECB’s “Report on a digital euro”4 The Governing Council of the ECB has not yet reached a decision on whether to introduce a digital euro. We must first be sure that there is a need to issue CBDC and, if so, that we are able to manage the accompanying risks. In the digital age, time is of essence. But we also have to take the time to do our homework.

Therefore, the Eurosystem has started to engage widely with citizens, academia, the financial sector and public authorities to assess in detail their needs, as well as the benefits and challenges they expect from the issuance of a digital euro. In mid-January, a public consultation on the digital euro came to an end with record levels of participation from European citizens.

Experimental work supports the analysis of possible technical designs and their implications. Further outreach to the market and exchange with other international central banks leading the work on central bank digital currencies will follow. And this brings me to my last point.

4 International dimension will be key 

International cooperation will be key in shaping the future ecosystem for central bank digital currencies.

As the BIS and other central banks have rightly emphasised in their report5 regardless of the final design, there are certain core features and common standards that are valuable in guiding a central bank when deciding to issue a digital currency for the public.

The features I consider most relevant in this context are convertibility, interoperability and international standards.

Convertibility is essential to ensure trust in a currency. People must be sure they can exchange the form of the money they hold at par at any point in time.

Interoperability is required to ensure a smooth exchange of money between different kinds of payment systems. In a digitalised world, this is an absolute prerequisite to ensure an efficient financial system.

Finally, appropriate international standards are the focal point in ensuring an efficient cross-border payments flow.

In my view, these three features are the key determinants of a stable and broadly accepted digital currency that fits into the international financial system.

Against this backdrop, safe and efficient payment markets must be brought to the next level, in particular for cross-border and cross-currency payments. This topic has been on the agenda for several years. While we have seen significant progress in improving payments at the domestic or regional level, cross-border payments are, putting it bluntly, still in the medieval age.

The G20 roadmap on enhancing cross-border payments is an important step in this direction. The Committee on Payments and Market Infrastructures, together with the Financial Stability Board and the BIS, has set up a comprehensive working programme encompassing 19 building blocks across five focus areas, including new payment infrastructures and arrangements, which covers central bank digital currencies, amongst other things.

This work can only serve the long-term goal of achieving a fair and sustainable payments landscape, as long as international cooperation thrives.

I am optimistic that this fruitful work initiated by the G20, but also in the form of other international formats, will continue. CBDC might not be the panacea for all challenges that payments are facing. But it might be an option, including for cross-border payments.

In a nutshell, payments are – and always will – be a backbone of the economy. The digital economy has already changed the payment landscape quite significantly and will continue to do so in future. It is the responsibility of the central bank to create trust in its currency and to ensure that payments remain competitive, innovative and safe. We also have to ensure that central bank money will be offered in a way that is compatible with the digital economy.

Let me finish with the words of Abraham Lincoln: “The best way to predict the future is to create it.”


1 BIS Papers No 114, Ready, steady, go? – Results of the third BIS survey on central bank digital currencies (January 2021).

2 https://www.bundesbank.de/en/tasks/topics/making-payments-in-2020-the-year-of-covid-19-card-based-and-contactless-payments-trending-823592

3 https://www.bis.org/publ/othp33.pdf

4 https://www.ecb.europa.eu/pub/pdf/other/Report_on_a_digital_euro~4d7268b458.en.pdf

5 https://www.bis.org/publ/othp33.pdf

Timothy Lane: Payments innovation beyond the pandemic

Introduction

Good morning, and thank you for hosting me today.

Digitalization: I’m sure many of you share my sentiments about these virtual events—that we would much rather be together in person, and yet we are grateful for the technology that allows us to gather online.

The need to switch to this digital platform is, of course, just one small example of the changes brought on by the global pandemic. COVID-19 has claimed the lives of far too many—in Canada, we have lost more than 20,000 people. The virus has had a devastating impact on households and businesses across the country. Almost overnight, the Canadian economy suffered its worst setback since the Great Depression.

One major impact of the pandemic is certainly familiar to all of us by now: the digitalization of our personal and professional lives has accelerated.

In my remarks today, I’ll focus on how these developments have affected the world of payments. I’m referring to changes in the way Canadian consumers and businesses pay for goods, services and financial assets. I’ll begin by talking briefly about the economic consequences of the pandemic. Then I’ll go on to discuss the implications for three main aspects of payments.

The first is the concept of a central bank digital currency—a “digital loonie,” as it were. For several years, the Bank of Canada has been analyzing which circumstances might lead Canada to decide to issue a digital currency. The pandemic may bring us to a decision point sooner than we had anticipated.

Next, I’d like to look at a major program of payment system modernization underway in Canada. Consumers and businesses will see the benefits of this modernization rolling out this year and next. The pandemic has underscored the importance of expanding the reach of real-time payments.

Finally, I will address the issue of cross-border payments, which are often slow, expensive and vulnerable to fraud. The Bank has collaborated with international partners on a roadmap to address the pain points in cross-border payments. We are fully committed to working with the public and private sectors to make any necessary changes in Canada to support this.

COVID-19 and the digital economy

The digitalization of the economy was well underway before COVID-19 hit, but the changes brought on by the pandemic have been rapid and far-reaching.

As a society, we had to quickly implement the virtual workplaces we had largely only been imagining. Nearly one-third of Canadians are mostly working from home,1 including me—I have been in my office only eight times since last March. In addition, many students continue to learn virtually.

COVID-19 has also changed how we shop. A survey of Canadian retailers shows that e-commerce has nearly doubled from pre-pandemic levels.2

Businesses are responding to the pandemic by incorporating new technologies into their operations. In our most recent Business Outlook Survey, nearly two-thirds of participating firms reported that they are making some kind of digital investment.3 Expanding their business online was commonly cited as the reason for these investments—on both the operations and client-facing sides.

Among these developments is a shift toward the increasing use of digital payments. For example, a November 2020 survey found that two-thirds of small businesses now accept payments online—and half of them started doing so only recently.4

Even when Canadians pay for goods in person, contactless options appear to be gaining traction. Interac reports that the volume of Interac Flash transactions grew by two-thirds in July 2020 compared with April.5 Consumer surveys also report that contactless payments have increased.6

The Bank of Canada has been carefully watching these trends. We are particularly interested in how the pandemic has changed the way that Canadians purchase goods and services. And we are keenly aware of the need to seize the opportunities that lie before us to give Canadians even better, cheaper and faster payment methods.

Cash: physical and digital

Let’s start with Canadian bank notes.

As we have all embraced technology and its many innovations, one thing that hasn’t changed as much is cash. It’s true that the Bank has updated bank notes in new and exciting ways. We’ve incorporated state-of-the-art security features to combat counterfeiting. We now make bank notes using polymer instead of paper. And we’ve made a concerted effort to ensure the images and portrait subjects on bank notes reflect Canada’s unique and changing identity.

But the basic nature of bank notes has not changed—they are still physical objects.

However, for the past decade or so, the Bank has been considering these bank notes, and we’ve been asking ourselves: could Canada and Canadians benefit from a digital form of cash?

In a speech in Montréal a year ago, I gave our preliminary view: we did not see a need for a central bank digital currency at that time, but we could imagine scenarios that could make a central bank digital currency beneficial in Canada. I concluded that we would move forward to develop such a digital currency as a contingency plan, given how quickly the world is changing and the time required to develop a viable product.7

A year later, our view remains unchanged: a digital currency is by no means a foregone conclusion.

That said, the world has been changing even faster than we expected. In fact, just two weeks after I spoke, the first lockdown was imposed, which accelerated the evolution of the digital economy. And so our work to prepare for the day when Canada might want to launch a digital loonie—backed by the Bank—has also accelerated.

We are not alone. In a recent survey, almost 60 percent of central banks reported the possibility that they will issue a central bank digital currency within six years. This is up from less than 40 percent only a year ago.8

One scenario we have been watching is whether a sharp decline in the acceptance of cash reaches a tipping point in Canada. We’ve already seen that as societies and economies modernize, cash has been losing ground to digital methods of payment—around the world and here at home.9

Since COVID-19 hit, we’ve seen a growing hesitancy in Canada to use cash. Although Canadians are holding more cash than ever, cash may not currently be circulating as much. In recent Bank of Canada surveys, consumers report some merchant preference for contactless payments, and some report experiencing merchants’ refusal of cash due to fears of virus transmission.10 Of course, it’s too early to tell whether these trends will continue beyond the pandemic, but we are watching closely.

The other scenario I raised in my speech last year is the increasing use of digital currencies created by the private sector, including cryptocurrencies and so-called stablecoins. While these products have existed for several years, some could see a boost from the acceleration of digitalization in the midst of the pandemic.

Even in this increasingly digital economy, though, cryptocurrencies such as bitcoin do not have a plausible claim to become the money of the future. They are deeply flawed as methods of payment—except for illicit transactions like money laundering, where anonymity trumps all other features—because they rely on costly verification methods and their purchasing power is wildly unstable. The recent spike in their prices looks less like a trend and more like a speculative mania—an atmosphere in which one high-profile tweet is enough to trigger a sudden jump in price.

In contrast, widespread adoption of stablecoins for everyday transactions is possible, although none is near that point yet. Because in most cases they are partly or fully backed by safe assets, their purchasing power is designed to be more stable.

But many issues need to be addressed before we can be confident that stablecoins can be used safely by the general public. The Financial Stability Board is examining these issues at the global level, and I am chairing the international working group that is taking this work forward. Here in Canada, we still have work to do to ensure that our regulatory framework covers these new products.

Amid all of these developments, two fundamental questions need to be addressed: Are there benefits to issuing a digital form of money? And if yes, who should do so?

In response to the first question, we don’t yet know whether many Canadians will actually want to use a stablecoin or any other kind of digital currency when they have alternatives available—cash, debit, credit and electronic transfer. Would the addition of a digital form of cash to the existing suite of digital payment methods meet a real demand and enhance the evolution of a competitive, vibrant digital economy? More work is clearly needed to identify the potential benefits to users, compared with other alternatives. And of course we also need to study potential risks.

In response to the second question, if the public does want a digital cash-like currency, some good reasons illustrate why a central bank—a trusted public institution—should issue it.

Currency is a core part of the Bank’s mandate, and the integrity of our currency is a public good that all Canadians benefit from. Only a central bank can guarantee complete safety and universal access, and with public interest—not profits—as the top priority.

Let me spell out one aspect.

It has been said that in the digital economy, data is the new oil. Many technology companies follow a business model in which they use their customers’ data to refine and expand the range of products and services they offer to the public. This, in turn, pulls more and more business onto their platform, which generates more data, and so on.

If that business model were used as a foundation for the dominant method of payment in the economy, the issuer would gain control over an enormous range of data—bringing with it overwhelming market power.11 In effect, a technology company could become the gatekeeper of the entire economy, with concerning implications for privacy, competition and inclusion.

Let’s compare this with a central bank digital currency. A central bank—with no commercial motivation to harvest data—is uniquely positioned to build in safeguards for privacy, while at the same time defending against criminal uses. Privacy is clearly important to Canadians, and it’s also in the public interest to protect some degree of privacy.12

Universal access would need to be another key feature of a central bank digital currency. That means ensuring that remote and marginalized communities—including but not limited to the underbanked and unbanked—are not left out of this new way to pay for goods and services.

As part of our advancing work, the Bank has been researching and experimenting with different technologies. In addition, we recently engaged three university project teams to independently develop proposals for what a digital currency ecosystem could look like. Their reports will be released tomorrow. This blue-sky thinking will help inform our research going forward.

We are also carefully considering what the business model for a Canadian central bank digital currency might look like: What role would the private sector play in its development, distribution and transfer? How would this product interface with Canada’s core payments systems that transfer funds among financial institutions to settle both retail and large-scale payments?

Modernizing our core payments systems – digitalization

Long before the pandemic hit, efforts to modernize Canada’s core payments systems had already begun. This work is important, and with the rapid expansion of the digital economy accelerated by the pandemic, we can now see the benefits more clearly.

Led by Payments Canada, several key players in the payments ecosystem—such as Interac, commercial banks and other stakeholders—have been working to bring these payments systems fully into the modern digital age. The Bank of Canada is heavily involved as a central bank, a regulator and, in some cases, a participant.

Over the next year or so, these improvements will start to come online. This is important for Canadians because it will mean greater speed, convenience, competition and choice in how people pay for goods and services.

Right now, the fastest and most immediate money transfers we see are e-Transfers. But the new Real-Time Rail system—which will go live in 2022—will provide real-time payments beyond what is already offered through e-Transfer.

When this innovation is complete, we can imagine scenarios like these: businesses being able to pay part-time workers immediately upon completion of their shift; homebuyers putting down the deposit on their first home with a click of a button instead of physically taking a bank draft to their lawyer’s office; and governments being able to distribute emergency funds in a matter of seconds, directly into citizens’ bank accounts.

The Bank is also helping to improve other core payments systems. This includes an interbank payment system called Lynx, which will replace the current Large Value Transfer System this autumn. Lynx’s up-to-date technology includes enhanced safeguards against cyber and other risks. Another system we’re looking to improve is the one that clears cheques and other low-value payments. Improvements here will further expand consumers’ choices for convenient digital payments.

Two other important developments, which I will briefly describe, will complement these changes.

The first is retail payments supervision. This past August, the Bank assumed oversight responsibility for the Interac e-Transfer system under our current mandate. And the Government of Canada has announced its intention to give the Bank of Canada further oversight authority for retail payment service providers—companies that aren’t traditional banks but specialize in processing payments for the public. By ensuring that risks are well managed, the Bank, through its new supervisory role, will support confidence in payment service providers and should further encourage competition and innovation in retail payments.

The second development is open banking, which will remove the barriers for banking customers to safely and easily share their financial information if they choose to engage other service providers in managing their money and other assets. Open banking will help promote greater competition and choice by allowing consumers and businesses to more easily compare the products and services various financial institutions offer.

Several countries have already introduced open banking, and the federal government has launched consultations on how to implement it in Canada. This is being done to ensure that innovations are balanced with data control and privacy considerations.

We have come a long way, but more work remains. And this work takes on greater urgency as we find ourselves in an environment where the current system’s shortcomings could limit the ability of consumers and businesses to pursue the opportunities created by the digital economy.

Thankfully, Canadians can look forward to significant improvements in the speed, convenience, efficiency and choice of digital payments in the near future. This is an important part of the Bank’s responsibility to promote safe, sound and efficient financial systems.

Cross-border payments

I’d like to turn now to the issue of cross-border payments, an area that has an obvious and pressing need for improvement. Sending money abroad has always been notoriously slow and expensive for individuals and businesses—so much so that it interferes with lives and livelihoods.

Issues with cross-border payments affect millions of Canadians. This includes new Canadians who send money to family in their country of origin. It includes snowbirds who split their time between Canada and warmer climates—although not this winter, for the most part. And it includes many Canadian businesses that face unnecessary costs and delays in paying for supplies and services from abroad or in receiving payment for the things they sell outside the country.

Beyond our borders, the issues are even more pressing for developing countries, where many individuals rely on family members abroad to send them money so they can afford basic necessities such as food, clothing and education. Many of these needs have become more acute with the uneven global impact of the pandemic. Put simply, the problems with sending money across borders create disadvantages that can prevent already impoverished people and countries from fully participating in the global economy.

In fact, these issues have been used as an argument for the creation and use of cryptocurrencies and stablecoins. But there is plenty of room to improve cross-border payments without using these novel methods of payment, which would not by themselves fix the problems with cross-border payments.

As part of an initiative endorsed by the G20 and coordinated by the Financial Stability Board, the Bank of Canada and other central banks and regulators have developed a roadmap to solve some of these problems. Our main goal is to support faster and cheaper cross-border payments that are more accessible and transparent.

As I mentioned at the beginning of my speech today, we have identified numerous pain points in cross-border payments. Technological shortcomings certainly pose problems with different messaging standards in different countries. Anti-terrorism and anti–money laundering regulations—while crucial for our safety and security—can also slow the transfer of money, with multiple compliance checks. And of course, there are numerous time zones to consider. When you send money from Ottawa at noon all the way to Cambodia, the local payment system there isn’t open at midnight to process the funds.

The G20 roadmap is extensive and lays out work that several different organizations will carry out. For our part, the Bank is working with partners internationally—most notably the Committee on Payments and Market Infrastructures at the Bank for International Settlements. But just as important, we’re also putting the pieces in place in Canada to support the coordinated domestic effort that will be necessary to identify and address the most pressing issues from a Canadian perspective.

For all of these efforts to be successful, central banks and other authorities around the world who are working on this will need the cooperation of public and private sector partners in their own jurisdictions. Only then can we make lasting improvements to cross-border payments and ensure that people, businesses and nations around the world have the best opportunity to truly participate in the global economy.

Conclusion

Canadians may take our current payments ecosystem for granted because buying goods and services is already relatively simple. Long gone are the days when making a large impulse buy on a weekend was next to impossible, because your bank wasn’t open for you to withdraw cash.

But that doesn’t mean there aren’t opportunities to provide Canadians with greater choice in how they pay for goods and services. Digital payment methods are integral to a truly digital economy, and can open up endless possibilities for further digital innovation.

And as we all struggle with the personal, professional and economic ramifications of the pandemic, it’s even more important that the Bank move forward with this work.

The Bank will continue to explore the possibilities of a digital currency that would be an electronic version of the bank notes that Canadians trust and rely on. We will issue such a currency only if and when the time is right, with the support of Canadians and the federal government, and with the best evidence in hand.

We can and will make our core payments systems more effective and efficient to help consumers and businesses exchange funds in real time.

And we will push forward with work to make cross-border payments cheaper, easier and safer for people around the globe to send and receive money.

Thank you again for having me, and I look forward to your questions.

I would like to thank Scott Hendry, Darcey McVanel, Christopher Reid and Francisco Rivadeneyra for their help in preparing this speech.

  1. 1. Statistics Canada, “Labour Force Survey, December 2020,” The Daily (December 2020).[]
  2. 2. Statistics Canada, “Monthly Retail Trade Survey,” (October 2020).[]
  3. 3. Bank of Canada, Business Outlook Survey—Winter 2020–21 (January 2021).[]
  4. 4. PayPal Canada, Business of Change—PayPal Canada Small Business Study (November 2020).[]
  5. 5. Interac, “Interac Debit data: Signs of COVID-19 recovery,” press release.[]
  6. 6. H. Chen, W. Engert, K. P. Huynh, G. Nicholls, M. Nicholson and J. Zhu, “Cash and COVID-19: The Impact of the Pandemic on the Demand for and Use of Cash,” Bank of Canada Staff Discussion Paper No. 2020-6 (July 2020).[]
  7. 7. T. Lane, “Money and Payments in the Digital Age” (speech to the CFA Montréal FinTech RDV 2020, Montréal, Quebec, February 25, 2020).[]
  8. 8. C. Boar, H. Holden and A. Wadsworth, “Impending Arrival—A Sequel to the Survey on Central Bank Digital Currency,” Bank for International Settlements Working Paper No. 107 (January 2020). []
  9. 9. K. Huynh, “How Canadians Pay for Things,” Bank of Canada The Economy, Plain and Simple (October 2019).[]
  10. 10. H. Chen, W. Engert, K. P. Huynh, G. Nicholls, M. Nicholson and J. Zhu, “Cash and COVID-19: The Impact of the Pandemic on the Demand for and Use of Cash,” Bank of Canada Staff Discussion Paper No. 2020-6 (July 2020).[]
  11. 11. J. Chiu and T. Koeppl, “Payments and the DNA of Big Tech.” Presentation at The Future of Money and Payments: Implications for Central Banking, Bank of Canada Annual Economic Conference, November 5, 2020.[]
  12. 12. R. J. Garratt and M. R. C. Van Oordt, “Privacy as a Public Good: A Case for Electronic Cash,” Bank of Canada Staff Discussion Paper No. 2019-24 (July 2019).[]