The Bank of Canada is looking to gauge public interest in a possible digital dollar, while maintaining that an electronic version of the currency is not yet necessary.
The central bank has been exploring the idea for several years in response to the decline in physical cash transactions and the growth in electronic payment systems and cryptocurrencies.
On Monday, it launched its first public consultation on the issue. The online survey, which runs until June 19, asks how people might use a digital dollar and what security and privacy features they would want it to have.
Central bank digital currencies, known as CBDCs, differ from cryptocurrencies and other forms of private digital money. They are guaranteed by a central bank and hold the same value as the national currency. In effect, they’re a digital version of a dollar bill, with the same kind of guarantees as a physical banknote – at least in theory.
So far, 11 countries have launched CBDCs, including the Bahamas and Nigeria. Other countries, such as Australia, Sweden, China and India, are conducting pilot programs.
The Bank of Canada’s consultations are pre-emptive. The decision to launch a Canadian CBDC rests with the federal government, not the central bank. But the bank has been laying the groundwork in case Ottawa greenlights the idea. It ramped up its research efforts during the COVID-19 pandemic alongside the boom in e-commerce.
“As Canada’s central bank, we want to make sure everyone can always take part in our country’s economy. That means being ready for whatever the future holds,” senior deputy governor Carolyn Rogers said in a news release.
CBDCs have become a major topic of research at central banks around the world. Most money is already digital: It exists as numbers on a screen rather than as physical bills in a bank vault or wallet. Still, monetary policy makers are concerned that a further decline in physical cash use could undercut their position at the center of the payments system, and diminish equal access to payment methods.
Central bankers have tended to dismiss the possibility that bitcoin or other cryptocurrencies will seriously challenge national currencies. But they have become worried about private money backed by large technology companies. The drive toward CBDCs accelerated in 2019 after Facebook announced that it would launch its own digital currency. The plan has since been abandoned.
“There may come a time when banknotes are not widely used in day-to-day transactions, which could risk excluding many Canadians from taking part in the economy,” the Bank of Canada said in the news release.
“It’s also possible that private cryptocurrencies or central bank digital currencies issued by other countries could become widely used in Canada in the future. This could compromise the role of an official, centrally issued currency – the Canadian dollar – in our economy and pose a risk to the stability of our financial system,” he said.
The central bank continues to argue that Canada doesn’t need a CBDC yet. There would need to be a sharper decline in cash usage or a much larger uptake of cryptocurrencies before a CBDC would be the best option, central bank officials say.
Moreover, the bank has promised not to phase out physical notes even if it launches a digital dollar at some point in the future. “Cash isn’t going anywhere,” the bank said Monday.
The idea of central bank digital money is not without critics. The Canadian Bankers Association argues that CBDCs could undercut commercial bank funding and reduce competitiveness in the financial system. If individuals can keep a portion of their money directly at the central bank, commercial bank deposit accounts may be less attractive, with potential knock-on effects for bank lending.
Some commentators and politicians have also warned about privacy concerns. Unlike cash, digital transactions leave a trail. And cryptocurrencies, unlike CBDC transactions would need to comply with anti-money laundering and terrorist financing laws.
Conservative Party Leader Pierre Poilievre, a vocal advocate of private cryptocurrencies, has said he would not allow the launch of a CBDC. The Bank of Canada said it would publish a report on its consultations later this year.