Bank of Canada lays foundation for digital currency

If the need arises, the Bank of Canada will be ready to issue a digital currency. However, this is only preparatory work. Like other counterparts, the central bank does not judge a CBDC needed today.

"Before anything else, preparation is the key to success," said scientist and inventor Alexander Graham Bell. The Bank of Canada is determined to apply this principle in matters of central bank digital currency (CBDC).

Like other counterparts around the world, she embarked on preparatory work. In a document published Tuesday, February 25, the Bank of Canada specifies its plans to define a prototype digital currency.

CBDC is not necessary "at the moment"

For his deputy governor, Tim lane, this is to lay the foundations necessary for the introduction of a digital currency, "If the need arises". However, such a cryptocurrency is not necessary at present.

Canadians are well served by the existing payment ecosystem, which is why we believe it is not necessary for the Bank of Canada to issue its own digital currency at this time. But the world can change very quickly, so we need to prepare for one, ”says Lane.

For the central bank, two main scenarios would justify the effective introduction of a CBDC : the disappearance or virtual disappearance of physical species, which could exclude certain citizens from access to payments, as well as the "serious incursions" of private cryptocurrencies.

The first scenario was also put forward by the Bank of Sweden to justify the launch of a digital currency prototype, in partnership with Accenture. As for the second scenario, it refers, without naming it, to Libra project from Facebook.

Be ready to react to “forays” of private cryptocurrencies

This deadline is probably the closest for the Bank of Canada. With this in mind, a digital central bank currency should be likely to offer advantages that could thwart a private asset.

For Tim Lane, this amounts to "providing the benefits of safe, easy-to-access, private, and good-value currency, but in a digital version that consumers could use to make electronic purchases online or physically in a store. "

The Bank of Canada opens discussions to clarify the contours of a "possible future digital currency". It announces "broad consultations" aimed at determining, for example, the characteristics of a CBDC "Attractive" for traders and users.

Cohabitation with other payment methods, operation for cross-border transactions, reconciliation of the protection of privacy and the fight against illicit uses are the main areas that will be addressed through these consultations.