The central bank does not see a real need to issue its own cryptocurrency unless a competitor to cash takes off, said Deputy Governor Timothy Lane. His speech, titled “Money and Payments in the Digital Age,” addressed how the central bank is approaching the idea of central bank digital currencies; in his view, cash works.
To be sure, Bank of Canada was one of the most active students of the CBDC concept, and it ran a pilot project on R3’s distributed ledger tech solution Corda. Last May, the project was live-tested in a cross-border settlement trial with the Monetary Authority of Singapore.
However, in the end, the regulator wasn’t that impressed.
“We have concluded that there is not a compelling case to issue a CBDC at this time. Canadians will continue to be well-served by the existing payment ecosystem, provided it is modernized and remains fit for purpose,” Lane said.
The widespread use of private cryptocurrencies could change this calculation, he said. Lane described such cryptocurrencies as “a monopoly that would erode competition and privacy and pose an unacceptable challenge to Canadian monetary sovereignty.”
The most obvious threat is Libra, the stablecoin initially championed by Facebook and now led by a group of companies. While there is currently no timeline on the stablecoin’s launch, individuals associated with the project have confirmed that development is continuing despite a harsh reaction from the global community.
“It’s tough to predict if Libra will ever live up to its promises or even come into existence. But it is a good example of a transformative technology that affects how the bank needs to respond to the future of money,” Lane said.
For now, the Bank of Canada plans to do more exploratory work and consultations with central banks including the U.K., Sweden, Switzerland, Japan, the EU and the Bank of International Settlements as part of a group effort formed earlier this month.
The Bank of Canada will also consult with the “governments and key stakeholders in provinces and territories across Canada” to learn if they want a CBDC and how they want it, Lane said.
Overall, if one day Canadians ultimately abandon cash or turn to private cryptocurrencies, the country will need a digital cash “issued and distributed by an organization that is guided by the interest of the public good, rather than profit” and “backed by a central bank’s balance sheet and its reputation for preserving the value of our money,” Lane concluded.
The speech echoed the sentiments voiced by representatives of the Bank of Canada’s peers, which gathered at a CBDC-focused conference in Kyiv, Ukraine, last week. Central bankers from the Netherlands, Ukraine, Uruguay and other countries shared a common view that central banks probably don’t need anything blockchain-like for a digital payment system.
However popular the new digital fixtures are, the Bank of Canada strongly believes in, and is determined to preserve, paper cash “to make sure that Canadians who wish to use bank notes can continue to do so.” In particular, the regulator is contemplating a new design for a C$5 bank note, Lane said.
“The bank is in the midst of a wide consultation process to ask Canadians who they want as the portrait subject of this new bank note,” he said.