Bank of Canada makes a positive case for CBDCs

As many countries jump of the CBDC train, the Bank of Canada has stepped forward to voice its support for the nascent technology.

In a recently updated staff discussion paper, the bank articulated two possible scenarios that might warrant the issuance of a central bank digital currency (CBDC).

The first scenario is in a largely cashless society where a few disadvantaged groups may not have the means to transition to digital alternatives with the rest of the citizens. In the second scenario, the bank considers a situation where the adoption of cryptocurrencies becomes so popular that they threaten the “monetary sovereignty” of the Canadian dollar. This poses a threat because such a currency would lie outside the reach of Canadian regulators. It could also affect the economic policy-making in the country.

In general, the bank concludes by noting that a CBDC is necessary to support the growing innovations in a digital economy and could be a simpler tool in regulating payment networks because it offers a cheaper alternative as a payment instrument for customers and traders.

The digitalization of the economy will continue, which could aggravate competition problems in markets dominated by digital platforms, including the payments market. In general, a CBDC as a basic outside option for payments could discipline the market [...]as a competition tool, a CBDC might be simpler than developing new competition policies in the complex and changing environment of big tech, and simpler than attempting enforcement via lengthy and uncertain legal battles.