The Toronto Star reports that the Royal Canadian Mint plans to showcase its latest in developing a centralized, government-backed digital currency at the National Retail Federation’s Annual Convention & EXPO in New York City next week. The Mint has partnered Ingenico, a payment solutions company with a worldwide presence to create MintChip.
According to Marc Brule, Chief Emerging Payments Officer at the Mint who spoke to the Toronto Star, this is the first initiative of its kind from any government in the world.
For digital currency enthusiasts who love the technology but don’t like volatility or insecurity, this lets them have their cake and eat it too. Mintchip compares with Bitcoin et al, in that 3rd parties, such as credit card companies and banks, are cut out of the equation. It is essentially a P2P payment system, whereby payments are instantaneous and debit-based, as opposed to credit cards. At this point, it is unclear if transactions are irreversible.
The system contrasts with bitcoin in several ways. First and foremost, it’s Canadian dollars and cents, not bitcoins. The currency is therefore centralized and regulated, and will probably not provide the same levels of anonymity that decentralized digital currencies do. In addition, there are caps both on the amounts that can be held in an account as well as maximum transfer sizes. While this minimizes the magnitude of risk and criminal activity, it also means that it cannot completely replace the legal system of value transfer when it comes to large transactions, essentially relegating its usefulness to pocket change.
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Should the concept take off, there is potential for significant savings to economy if the production of physical change is significantly or curbed or even phased out. Last year, the the penny was phased out after it was deemed more expensive to the economy to keep in circulation.
While Mr. Brule believes that the day will come for centralized digital currency, there will always be a place for physical coins as well.
Coming trend: Arrival of government issued digital currencies
While digital currencies have been focused on decentralized products, the emergence of a government backed product shouldn’t come much as a surprise. In the same matter that much of the world is becoming digitalized, such as with videos, photography and music, the emergence of bitcoin as a real currency for making purchases has proved that physical money is ripe for its own changes.
For governments, a digital dollar is advantageous in replacing the costs associated with printing physical cash and the ability to trace transfers. Prospects are strong that other governments or bank networks will launch centralized versions of digital currencies. In terms of banks, JPMorgan Chase is known to be fiddling with such an endeavor. However, unlike decentralized versions relying on crowdsourced innovation to speed up product creation, the bureaucratic nature of large financial institutions and governments may keep centralized digital currencies on the sidelines for the next few years.