Bank of Canada Plans to Launch a Digital Currency

The Bank of Canada has said that it has no plans to issue digital currency at this time. Nevertheless, preparations are underway to build the capacity to do so should Canada’s payments ecosystem change. It also presented two main scenarios that could justify taking into account such a political measure.

26 February, 2020 | AtoZ Markets –  The Bank for International Settlements (BIS) found that an increasing number of central banks are likely to issue their own digital currencies in the coming years. While many of those launching pilot projects are emerging economies, China is the closest major economy to issuing digital currency. Sweden has also started testing a digital e-krona.

Bank of Canada Preparing for Possible Digital Currency

Bank of Canada Deputy Governor Tim Lane said that there is “no compelling case ” for central bank digital currency (CBDC). But a prototype is under development, and the bank plans to consult a wide range of stakeholders to design a central bank digital currency.

The bank sees two main scenarios in which the central bank might see the need to issue its own digital currency:

  • If the use of cash is eliminated or restricted
  • If private cryptocurrency was to make serious inroads.

In both cases, there would be an argument for the Bank of Canada to intervene, said Lane. The bank would do so as a trusted public institution, creating an official digital currency designed with the public interest as the top priority, without any commercial motive.

Private Cryptocurrencies as Potential Threat 

The Bank for International Settlements and the International Monetary Fund asked central banks to at least explore the possibility of experimenting. The bank sees widely used private cryptocurrencies as a potential threat to the Canadian dollar. Lane added:

If alternative digital currencies threatened the Canadian dollar, then a digital currency issued by a central bank could be used to defend monetary sovereignty.

Read More: NASAA Warns Against Cryptocurrency Investment Threats in 2020

This is not the Bank of Canada’s first foray into this area. The staff have written several papers on the potential effects of the introduction of digital central bank currency, including the possibility of reducing market power private banks. However, the central bank is moving towards the development of a real prototype. It will still be years before it is ready, and a legislative framework put in place.

However, the Bank of Canada was quick to reassure Canadians that their currency would not become obsolete anytime soon. The Bank of Canada will ensure that banknotes are available to Canadians who wish to use them, said Deputy Governor Lane.

Facebook Libra Pushed Central Banks

Central banks around the world are trying to get acquainted with new payment technologies. Private sector initiatives, such as Facebook Libra, add urgency to the debate over how digital currencies should be treated.

A major digital commerce platform based in Canada, Shopify, would join the Libra association. The Libra officially announced in June 2019. Since its appearance, it has raised regulatory concerns worldwide.

Some countries have started considering reconsidering the U.S. dollar as the dominant global currency. Banks have admitted that Facebook’s Libra has pushed central banks to consider digital currency initiatives to replace cash.

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