The Bank of Canada announced it’s officially dropping its plans to introduce a central bank-regulated digital currency after years of bandying around the idea.
The proposed “digital loonie” would have offered Canadians a retail central bank digital currency CBDC, that could have been used for transferring funds or everyday purchases like gas and groceries.
“The Bank has undertaken significant research towards understanding the implications of a retail central bank digital currency, including exploring the implications of a digital dollar on the economy and financial system, and the technological approaches to providing a digital form of public money that is secure and accessible,” the bank told CBC News.
Canada’s central bank initially launched a research project into the possibility of a digital dollar in 2017, however, it said it will be shifting its focus away from the concept after completing public consultations in 2022.
According to a Bank of Canada staff discussion paper released this summer, Canada would require its own digital currency to maintain monetary sovereignty.
The three main risks posed by implementing a CBDC are “increased potential that fragmentation of the monetary system could create inefficiencies, increased ability of issuers of private forms of money to exert market power and increased difficulty implementing timely and adequate regulation due to the rapid pace of change,” reads the paper.
While over 130 countries are exploring the possibility of a central bank digital currency, only three have officially launched one; Nigeria, Jamaica and the Bahamas.
According to the central bank’s research, “the main arguments for why cash has been and remains essential to a well-functioning monetary system” is that retail public money, among being “a cornerstone of the monetary system,” which aids the regulatory framework and also “supports confidence in the system and the uniformity of the currency.”
However, the bank said that “in a future where cash is less relevant and is no longer a competitive payment alternative to private money, issues could arise in the uniformity of the Canadian dollar,” which could cause the idea of creating a CBDC to resurface.