A study published by Canada’s central bank Banque du Canada found a number of good reasons that the country could benefit from its own central bank digital currency, CBDC.
The document set out two scenarios that could result in the bank issuing a CBDC at a later date. One would be if, for unspecified reasons, citizens would no longer use cash on a large scale within the country. The other could be if a digital currency, whether public or private, became so widespread that the sovereignty of Canada’s existing reserve currency would be jeopardized.
Participants did not see either scenario as a likely outcome in the near future, but noted that interest in regulating and adopting stablecoins within the country had increased in recent months. Even so, the study found that cryptocurrencies and stablecoins used as a means of payment in Canada are currently “a novelty for a small number of enthusiasts”.
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The document recognized a number of potential benefits associated with the introduction of a CBDC. The technology could in fact have the same level of security as cash and at the same time enable use in payment systems for online transactions and peer-to-peer transfers. Compared to payment options like credit or debit cards, a CBDC also wouldn’t necessarily have the same transaction fees for retailers:
“A CBDC could be a simpler competition policy tool because it would be an alternative low cost payment tool for customers and merchants. This would help to lower the interchange fees charged by the established networks. “
That a CBDC could potentially support smart contracts was also of interest as they could increase the speed and accuracy of execution by automating actions that are normally performed manually. However, participants felt that smart contracts would pose some risk to users as the smart contract developers would likely be independent of the bank’s CBDC platform. This could be problematic if the execution of the contract, intentionally or otherwise, did not meet the agreed terms. They advised that smart contracts, as well as the programmability of a Canadian CBDC, need further research before a decision is made on implementation.
There could be many benefits to creating a CBDC for Canada. The study stated:
“In general, we argue that a CBDC could be beneficial and likely necessary to ensure a competitive and dynamic digital economy.”
Canada is not the only country considering the possible introduction of a CBDC. In a speech to the House of Representatives last week, Federal Reserve Chairman Jerome Powell said there would be no need for stablecoins or cryptocurrency if there was a digital dollar. A paper focusing on the benefits and risks of a digital dollar is expected to be released in September.