Opinion: Digital money is an opportunity for Canada – if we seize it

Digital currencies and payments, like Bitcoin, can speed up and reduce transaction costs, both nationally and across borders, while also increasing security.Dado Ruvic / Reuters

Robert Fay is Managing Director of the Digital Economy at the Center for International Governance Innovation. David Dodge is a former Governor of the Bank of Canada and Senior Advisor at Bennett Jones LLP.

Around the world, financial systems are digitizing to deliver faster, cheaper, safer and more comprehensive services to households and businesses.

Meanwhile, central bank cryptocurrencies, stablecoins, and digital currencies are gaining significant public attention. They reflect the continued digitization of the global economy, driven by innovation and competition, which creates new opportunities around the world.

The potential benefits are many.

Digital currencies and payments can accelerate and reduce transaction costs, both nationally and especially across borders, while also increasing security. Financial technology (fintech) is expanding the range of financial services available in the market.

Open banking enables consumers and small businesses to securely and efficiently transfer their financial data between financial institutions and accredited third-party service providers. It can stimulate competition, facilitate access and expand the range of services available to households and businesses.

And central bank digital currencies can spur innovation and boost financial inclusion, ensuring access to digital services for all.

But to reap the full benefits of digitization will require a strong and cohesive framework that ensures collaboration between the public and private sectors.

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We recently hosted a workshop to hear the opinions of international and Canadian experts in this area. As we explain in more detail in a new report, we argue that there are three essential steps Canada must take.

First, Canadian governments and service providers must work together to achieve what has already been on the agenda; namely, a modernized payment system and secure data transfer to facilitate open banking transactions.

Second, Canada needs a fully updated legislative framework for managing privacy and data, and the adoption of industry standards for digital ID. Governments, central bank and regulators, in collaboration with market actors, must adapt existing policy frameworks to adapt and harness change in a way that supports an efficient, competitive, stable, secure, inclusive financial system and that inspires confidence. It is essential to ensure data security and confidentiality and allow consumers to have better control over their financial data so as to promote healthy competition.

Third, regulatory gaps need to be addressed. Existing regulatory frameworks are ill-suited to cope with new and emerging market structures.

Federal leadership is crucial here.

To achieve these three essential steps, the federal government must exercise strong leadership by mobilizing the necessary collective effort; making policy and market choices will require a careful balance of goals. Win-win solutions must be sought, but there will be tradeoffs at the margin – for example, between efficiency and stability, or between compliance and confidentiality.

You have to take risks.

The federal government cannot do it alone, for both jurisdictional and practical reasons. Collaboration is required. A digital financial market requires that the roles of the public and private sectors complement each other. A collective effort is essential to design, build, operate and oversee the financial system, realize the dividends of innovation, and serve the public interest.

Connecting all the moving parts requires collaboration between the public and private sectors, the active participation of provinces and territories, and intergovernmental efforts to promote harmonization of rules and good functioning of markets.

Interoperability will be essential to ensure consistency, competition and the ability of new entrants to enter the market. The different systems that can be developed at the national level must work with each other and with other systems at the international level.

International collaboration, especially in the development of global standards and business platforms, is also essential. Canada must be in step with global innovation to make its own decisions and shape the future of our financial system.

Canada’s efforts must be accelerated.

There is a window of opportunity to learn from the early experiences of world leaders, for example the UK and Australia, on open banking.

In addition, a price that is too slow or too timid will hamper the development of our dynamic fintech ecosystem and reduce the pressure and incentive for innovation by incumbents. This would allow foreign competitors and big tech to gain a stronger hold, without proper guarantees for Canadian consumers.

If progress does not accelerate, this country will fall behind its global competitors and our institutions will be disconnected from the aspirations and modes of transaction that the younger and tech-savvy generations now take for granted.

Change is disruptive and can be difficult. But slowing down is not a strategy. The cost to Canadians of a missed opportunity is simply too high.

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