Bitcoin does not replace “cash”, on the contrary

The monetary department of the Bank of Canada, with the support of the Orléans Economics Laboratory, has been interested in the effects of bitcoin on the level of “cash” assets of Canadian consumers. (Photo: 123RF)

LES KEYS DE LA CRYPTO is a section that patiently decodes the world of cryptocurrency and its stock market, industrial and media turmoil. François Remy’s mission is to identify promising entrepreneurs, decode technical progress and anticipate the industrial and societal impacts of this digital currency.

(Illustration: Camille Charbonneau)

A “surprising” result: the Bank of Canada is surprised at the use of cash by cryptocurrency holders. “This helps to reject the hypothesis that new digital currencies or technologies, such as bitcoin, will lead to lower cash holdings.”

Money in your pocket, money in the cloud. Behind this almost lyrical flight is actually the title of a Bank of Canada working paper. Its monetary department, with the support of the Orléans Economics Laboratory, has been interested in the effects of bitcoin on the level of “cash” assets of Canadian consumers.

Owning the crypto and holding the banknotes would maintain a positive correlation. Bitcoiners hold significantly more cash (83%) than those without digital currencies. An observation that the Bank of Canada readily uses to deny the great replacement of cash by electronic money exchanged pair-to-pair.

What a timing coincidence, the Canadian central bank is relaunching the same thoughts on crypto assets that fueled the debate in 2017. times in its history. Historic price below which the BTC temporarily fell again at the end of last week.

A complementary role

This piques the curiosity of the general public, regulators and the financial sector. And an existential question arises: how do people actually use bitcoin? “Was it a vehicle for speculation and investment or an accommodating means of transferring money for criminals”, dare to wonder the rapporteurs of the Bank of Canada. Before wondering, more moderately, if the holders have a faithful use of it to the original concept, that of the decentralized currency which opens up new transactional channels impossible otherwise.

“The answers to these questions remain largely undecided,” said the staff of the country’s monetary institution. “But these answers are becoming increasingly applicable in the face of central bank digital currency plans to catch up with the so-called ‘death of cash’.”

Leveraging data from the Bitcoin omnibus survey, the authors of the working paper point to “a startling finding” that suggests digital currencies actually played a complementary role to existing payment methods and financial systems. “Instead of supplanting them,” they insist.

Given the limitations of its investigation, the Bank of Canada is unable to shed light on the specific reasons that lead bitcoin holders to possess (significantly) more cash. The rapporteurs cite the scientific literature so as not to stand idly by and at least offer lines of reasoning.

To dig

A European study produced by Helmut Stix of the National Bank of Austria indicates that bitcoiners strongly believe in the strengths of cryptocurrency over conventional means that only prevail in the future. It is also on the side of beliefs and convictions that a study by the Bank of Canada to be published will look for the most plausible explanations.

In other words, more work will be needed to unravel the mystery of bitcoin adoption. The Bank of Canada recognizes that it would be necessary to identify specified specifics that allow users to adopt and use cryptos. In this regard, it would be useful to classify bitcoineurs according to different profiles (investors, occasional users, etc.). Because, concede the rapporteurs, “it is not unreasonable to assume that the holders of bitcoins are themselves heterogeneous” (sic).

Especially since this translation would still translate differently from one country to another. The inhabitants of other continents already having a different relationship with money, their use of “digital cash” would inevitably vary.

“Canada can be considered relatively advanced in terms of financial inclusion and the structure of its institutions,” enthuses one within the Canadian central bank.


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