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Experts suggest a central bank digital currency (CBDC) in Canada



A report by the CD Howe Institute suggests that the Bank of Canada should issue central bank digital currency. It should be exchangeable for “loonie” - the slang term for the Canadian dollar. The suggestion makes perfect sense as cryptocurrencies are becoming increasingly popular.

The report's authors, Mark Zelmer and Jeremy Kronick, stated, “Canadian dollar pegged stablecoins could be attractive to Canada by making them convertible into cash issued by the Bank of Canada. One should also ensure that stablecoins are well designed and regulated from a business conduct, competitive, operational, privacy and regulatory perspective. "

Stablecoins are tied to the price of another asset, usually the US dollar. This keeps their courses stable. Recently appointed Federal Reserve Vice President Lael Brainard has expressed her support for the potential benefits of a central bank-issued digital currency (CBDC).

CBDCs can boost the economy

Such a move by the Central Bank of Canada assumes that all potential stablecoins are well designed and regulated. That would make them attractive to Canadians, the report said. The digital currency should also be offered as a token, with decentralized technology for processing transactions, so that Canadians can retain most of the benefits of a paper currency.

"We prefer indirect CBDCs that can run on payment providers' balance sheets, mimicking cash / notes on the Bank of Canada balance sheet," the authors write.

The authors also suggest that this move could create incentives for the private sector. More stablecoins linked to the Canadian dollar could be created if the coins can be converted into cash. This would be done digitally, without having to rely on physical banknotes.

Bank in Canada is planning a CAD-linked stablecoin

On February 25, the Canadian bank VersaBank announced that it was planning to introduce a stablecoin “VCAD”, which will be pegged to the Canadian dollar at a ratio of 1: 1.

The Bank of Canada's introduction of a digital currency could mark the beginning of a new chapter in the way Canadians buy their goods. However, according to the report, this move can only be successful if it is widely adopted by consumers and if infrastructures are in place to support such use of digital currencies.

The authors conclude: “Canadians are more likely to prefer these stablecoins if governments encourage innovation in payments. Thus, Canadians can benefit from ongoing advances in payment systems and crypto technology. And if the purchasing power of the Canadian dollar is maintained by keeping inflation low. "

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