Wednesday, July 22, 2020

Setting Up the Global Economy for a Cashless Future

My long-term readers realize that one of my concerns is the implementation of a cashless (i.e. banknote-free) future.  Recent developments at one of the advanced economy central banks shows us how close we are to this scenario.


Here is the recent online posting for positions at the Bank of Canada:


CBDC stands for "Central Bank Digital Currency".


According to the job posting, like many of its central bank peers, the Bank of Canada is undertaking "a program of major social significance to design a contingent system for a central bank digital currency which can be thought of as a banknote but in digital form."


The Bank of Canada notes the following challenges for development of a CBDC with cash-like properties in digital form:


1.) Private: While not aiming for cash-like anonymity, CBDC should be highly private yet meet the obligation to be compliant with anti-money laundering and other regulations. 


2.) Universally accessible: Regardless of their circumstances, CBDC should be usable by all Canadians, even by those without a bank account or access to a cellular phone, in remote communities not well served by cellular networks, and/or those with sensory, motor and cognitive impairments. 


3.) Resilient: CBDC should continue to work even during electrical power and network outages. 


4.) Secure: CBDC must have the highest levels of security so Canadians can use it with confidence, as they do our banknotes.


Note, in particular, the Bank is requiring that the digital currency be "private" but that achieving "cash-like anonymity" is not the aim of the program.  It is also interesting to note that the digital currency must be universally accessible, even to those without a cellphone or bank account.  The Bank also notes that the architecture for the digital currency is expected to evolve over a multi-decade lifespan.


The Bank of Canada requires that the individuals being hired to develop Canada's digital currency have the following skill sets:


1.) Cryptographers with foundational understanding of cryptographic concepts and constructs able to apply their skills to product evaluation and development; 


2.) Digital security experts with specialization in the security of consumer electronic endpoints, such as smartphones, and custom electronic devices with secure elements; 


3.) Privacy experts who understand conceptions of privacy, related laws and regulations, able to design technological and operational means for achieving privacy


4.) User experience experts with foundational understanding of UX and able to work with a variety of individuals towards state-of-the-art inclusive design


5.) Reliability and resilience engineers with backgrounds in designing and building critical systems with extremely high resilience and fault tolerant requirements


6.) Systems architects with backgrounds in product development within complex eco-systems, able to conceive and guide the development of systems spanning a range of technologies


The CBDC technical researcher must have a Bachelor's degree in computer science, electrical engineering, physics, mathematics or another related field with a minimum of three years of relevant work experience.  In addition, applicants must have experience using at least two major programming languages including Java, C++, Python, Ruby etcetera and proficiency in both English and French. 


Not surprisingly, the security level required for this project is "Secret".


Salaries for these positions range from $94,100 to $117,600 with performance bonuses ranging from 7 to 10 percent of the base salary if the employee successfully meets expectations and up to 15 percent of the base salary if the employee far exceeds expectations.  The position is located in downtown Ottawa and is for a three year period with the possibility of extension or permanent employment.


It is interesting to see that the world's central banks are taking steps to implement our new paradigm, a development that governments around the world will be in strong favour of since it meets their ever-increasing need to track our every move.  And, just in case my readers in the United States should happen to think that they are off-the-hook on this one, here's a quote from a February 2020 speech by  Federal Reserve Governor Lael Brainard which explains Federal Reserve's moves toward a CBDC:

"Given the dollar's important role, it is essential that we remain on the frontier of research and policy development regarding CBDC. Like other central banks, we are conducting research and experimentation related to distributed ledger technologies and their potential use case for digital currencies, including the potential for a CBDC. We are collaborating with other central banks as we advance our understanding of central bank digital currencies.


In assessing CBDC in the U.S. context, there are policy and design issues to explore, as well as legal considerations. It is important to consider whether a new form of digital central bank liability might improve the payment system, taking into account the innovations offered by the private sector. We would need to consider whether adding a new form of central bank liability would reduce operational vulnerabilities from a safety and resilience perspective. Another consideration is whether a CBDC would reduce complexity in payments, improve end-to-end processing, or simplify recordkeeping. With regard to cross-border payments, it is important to consider what would be required in terms of cross-border cooperation for CBDCs to address current frictions and reduce costs."

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