Canada to Follow the CBDC Trail If That’s What Netizens Want

Deputy Governor Timothy Lane’s speech at CFA Montréal FinTech RDV2020 was published yesterday on February 25th, 2020, via the official Bank of Canada portal, and it is entitled “Money And Payments In The Digital Age“. You could take a longshot, but it sounds pretty self-explanatory now, doesn’t it?

Lane talked about various forms of electronic payments, focusing on cryptocurrencies and more specifically digital currencies issued by state-banks, calling the Bank of Canada an eye that examines closely the developments in the fintech sector, and an actor that is willing to take things on hand if the Canadian economic sovereignty were threatened by private monetary power-brokers such as Facebook’s attempt, dubbed Libra. 

Before finally praising digital currencies, the Deputy Governor engages in a monologue about fiat currencies, ending up saying that cash is outdated, it bears significant risks when stored in large volumes, not to mention the risks when carried in large volumes, and it cannot be used for remote transactions. 

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Canada is already running on digital money, just not on blockchain

Most Canadians already use electronic payments, whether that would be an e-banking service, credit or debit cards, PayPal, which he calls “sending money via email” and even cryptocurrencies, although Lane noted that Bitcoin users are a tiny minority in the country, with only 1/10 of them believing we’re headed to a cashless society. 

Nevertheless, whether the mainstream population is aware of it or not, we’re already there, with countries such as China, Sweden, and Norway already working on a digital level almost to its full potential, with cash being considered a costly method of exchange both physically and risk-wise as it can be subject for robberies, and forgeries. 

Furthermore, and besides the competitiveness between countries when it comes to monetary settlements, Lane says that the Bank of Canada and other central banks are mostly worried about Libra, and other possible private stablecoins, more than they are worried about traditional public cryptocurrencies such as Bitcoin and Ether.

Yet, the Bank of Canada is not keen on using cryptos or issuing its own digital currency as long as the domestic economy is working fine on an international level and there are no external threats set by private modules.

Lane says that the Bank of Canada has used a sophisticated blockchain platform developed by R3 to test the settlement process between the UK and Singapore, most likely the same system used by Hong Kong and Singapore recently, but he is not impressed at all.  

“The Bank of Canada collaborated with the Bank of England and the Monetary Authority of Singapore to identify the “pain points” in cross-border payments. Work on this topic is continuing through domestic and international forums, including the G20.”  – Timothy Lane

Concluding, the Deputy Governor believes that a CBDC is not necessary if people don’t need it. He adds that the risks of operating a 100% digital economy are far more severe than operating cash as such a payments network has a single failure point, and it can be a target for cyberattacks and even manipulated by power outages. 

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His highlights on why and when Bank of Canada may consider a CBDC are relying on whether Libra or something analogous can ever make it to the surface or not, while a less controversial path to the same point would indicate a decrease in cash reliance by Canadian citizens. 

The first is where private cryptocurrencies make serious inroads. The second is where the use of physical cash is reduced or eliminated altogether. 

“If either scenario came to pass, society may be well-served with a CBDC”:

• that is designed, issued and distributed by an organization that is guided by the interest of the public good, rather than profit;
• that is safe, resilient, universally accessible and private—just like cash; and
• that is backed by a central bank’s balance sheet and its reputation for preserving the value of our money.

Now while Canada is highly capable, yet not amused by blockchain at this point, Australia has recently released its national blockchain strategy which of course also includes a domestic CBDC. Other countries examining or working on CBDCs include but are not limited to China, the US, Japan, and UAE. 

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