Bank of Canada considers launching central bank digital currency to counter cryptocurrency threat

The Bank of Canada is considering developing a digital currency that could eventually replace fiat currency entirely, according to local media outlet The Logic.

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Governments support digital currencies to gain more control

More than a decade ago, Bitcoin was launched as a decentralized P2P currency system. It protects privacy and is free from government control. However, governments are gradually learning how to deal with this emerging "currency". As the saying goes, "If you can't beat it, join it."

In an online article titled “Central Bank Money: The Next Generation,” the Bank of Canada said a central bank-issued digital currency would have several benefits, such as allowing personal data to be shared with tax authorities or the police.

The Logic obtained the document through a request for information, and it found that the Bank of Canada is seriously considering developing its own digital currency to counter the "direct threat" of cryptocurrencies. The article states that the upcoming central bank digital currency will be widely used. Initially, it will be used in parallel with fiat currency, but digital currency will eventually become the only form of currency.

The many benefits of central bank digital currencies

The report was written by Stephen Murchison, a central bank digital currency research consultant to Stephen Poloz, the current governor of the Bank of Canada. After two years of in-depth analysis and research, Murchison concluded that central bank digital currencies have multiple advantages. The document reads as follows:

We need to keep innovating to stay in the “game.” Central bank digital currencies will have all the benefits of central bank assets and make wireless electronic payments convenient and secure.

The report lists more than a dozen benefits of central bank digital currency, but only one drawback, namely that digital currency "poses risks to the stable and low-cost financing of bank deposits."

However, Bank of Canada officials said it has not yet decided whether to launch a digital currency.

The Bank of Canada agrees that banknotes are becoming obsolete. Faced with growing pressure from cryptocurrencies, the central bank may need to move faster.

The Bank of Canada said in its report:

Cryptocurrencies could directly threaten our ability to conduct monetary policy and our role as lender of last resort.

If the BoC’s plans pan out, Canada wouldn’t be the only country with a national digital currency. Last month, it was reported that the Republic of the Marshall Islands was moving forward with a national cryptocurrency.