As the government body responsible for the production of loonies, toonies, nickels and sundry "limited-edition" collector coins, the Royal Canadian Mint is hardly the first thing that comes to mind when you think of cutting-edge technology. But that may be about to change.
Sometime before the end of this year, software engineers at the 105-year-old Crown corporation will begin pilot-testing a novel form of digital currency that so far has received little attention but which has the potential to revolutionize how we do business.
"Where we're going is not a road that has been travelled," said Marc Brûlé, head of the MintChip project and chief financial officer of the mint. "It has its challenges, but there are lots of people who are encouraging us."
Like many such technologies, the initiative has mostly been cloaked in secrecy -- apart from an app-building contest last year aimed at coming up with new ways of using the currency. Beyond that, the mint has been determinedly tight-lipped about what it's up to, which has only served to heighten expectations among the tight-knit community of techno-geeks and others who are focused on the sector.
Certainly, interest in so-called crypto-currencies is exploding for a variety of reasons, not least because of loss of faith in traditional money in the wake of recent central-bank money-printing. Digital money such as Bitcoin, Litecoin and various online game currencies that have made the jump into the real world are starting to garner major attention, but there's a big difference between them and what the mint is doing. As a government organization, the mint has the backing of the federal government, while Bitcoin and the like clearly do not.
Anyone following recent news events knows this is creating enormous regulatory and legal challenges for their proponents. Here in Canada, for instance, most banks have quietly stopped doing business with the handful of companies that allow customers to exchange Canadian currency for Bitcoins. Meanwhile, authorities in the U.S. recently seized two bank accounts belonging to Mt. Gox, the world's largest Bitcoin exchange, on the grounds it was operating an unlicensed money-transfer business, effectively stymieing the Japan-based company's efforts to expand into the U.S.
"The challenge for most companies trying to do this is they are not a federal mint," said Catherine Johnston, chief executive of ACT Canada, a leading payments-industry association. "What they're really doing is giving a digital representation of money, and it really requires a federally regulated body to be able to do true digital currency. So I see the mint as having everything they need to make it a reality."
MintChip is "the future of money," according to the mint's promotional video, which goes on to present it as a digital version that would be legal tender, just like physical dollars and cents. You would hold it on a smartphone or other electronic device, just like a wallet. And according to the mint's Brûlé, the money could be used just as easily whether you're shopping at a conventional bricks-and-mortar retailer, online or at your neighbour's garage sale, though your neighbour would, of course, need a properly equipped smartphone.
Brûlé sees it as part of the leading edge of a tsunami in mobile technology that is now washing over our society. "We're at the very beginning of this, you know. But I believe that smartphones are very powerful devices and very popular. You miss your wallet in a couple of hours but you miss your smartphone in minutes," he said.
One reason there's so much interest around digital money is the enormous possibilities it opens up for consumers, for businesses -- and for criminals. Unlike credit cards, which merely link to a complex payment system run mostly by the banks, MintChip is an actual digital representation of money, giving it many of the same qualities of physical cash, including the capability for anonymous, efficient and almost instantaneous transactions.
Because it's digital, the cost of managing it -- and one of the primary responsibilities of government is running the money supply -- is much lower. You're not constantly replacing lost and worn-out coins. Theoretically, instead of an entire government organization like the mint, all you need is a laptop and a good economist.
The most exciting possibilities are opened up on the user side. Providing it gains acceptance, it can be used in transactions anywhere on the planet between any two parties who accept the currency. Most important, MintChip would be cheaper, according to Brûlé.
Every time you use a credit card, the credit card issuer charges a fee, typically around three per cent, paid by the merchant, who then passes it on to the customer -- you. According to the federal Competition Bureau, those fees add up to more than $5 billion a year. Proponents of digital currencies usually claim such fees would be much smaller or non-existent in their system. Brûlé says MintChip can do it for a whole lot less than the credit card companies and banks.
On top of that, users wouldn't need a bank account or even a half-decent credit rating. As long as they have a smartphone, they can buy the mint's digital money.
That's one of the most exciting aspects of this technology -- the ability to operate outside the traditional financial system. Critics argue the poor and the unemployed end up getting hurt the most by the current financial system because they're the ones that end up at payday-loan companies because they don't have bank accounts. Brûlé argues this segment of society would benefit enormously from MintChip because it would free them from fat transaction fees.
Needless to say, traditional financial companies are watching closely.
The Canadian Bankers Association declined to discuss the matter.
"It's exciting to see all of the movement in this space," said Derek Colfer, head of mobile commerce activities at Visa Canada, who added that MintChip is "an interesting product."
Colfer said Visa already has investments in various technology companies in the mobile-payments sector, including Square, a successful U.S.-based start-up with a product that lets customers accept credit cards with their smartphones, making it a potential competitor to Visa.
But as for new digital currencies such as Bitcoin, they're a little beyond the scope of Visa's appetite.
"Our world is based on conventional currencies; I haven't really formulated an opinion on currencies that aren't traditional. I'm familiar with non-traditional currencies, but beyond that, I think the big difference is the trust and the acceptance levels. I have trust in the Canadian dollar because it's backed by something; I don't know where I could use a Bitcoin.
Even MintChip is a stretch, he believes. "MintChip needs to have acceptance levels, too, right? You need to be able to use MintChip somewhere."
Even Brûlé acknowledges that's a major challenge for his new digital money. Backed by Ottawa, he has all the financing and software expertise he needs to make MintChip a reality. What he doesn't have is the ability to convince the public MintChip is the way to go. The plan is to focus on what's known in the industry as micro-payments, things like paying for a bus ride or a stamp or maybe an article from an online magazine.
The ability to be able to pay easily for such services instead of fishing around for the correct change (and maybe not finding it), would be a major convenience to the public, so in theory, there would be plenty of demand on the part of consumers. And provided enough consumers joined the MintChip bandwagon, presumably merchants would see the benefit of the currency. Still, unless that hurdle can be overcome, the mint's new money will stay on the drawing board.
-- Financial Post