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.

Check our guide of the most promising crypto