Bank of Canada Considering Creating a National Digital Currency
Bank of Canada Considering Creating a National Digital Currency
National governments spanning the globe have grappled with how to handle the meteoric rise of cryptocurrencies such as Bitcoin for years.
During the early stages in the development of cryptocurrencies, fears persisted over crypto being used for illicit purposes such as money laundering, funding of terrorist organizations, and in transactions involving illegal products and services. However, as the adoption of cryptocurrencies continues to climb, many governments are now in the process of incorporating virtual and digital currencies into their future plans and financial systems, including Canada.
In a research report released by the Bank of Canada last year, researchers found that the percentage of Canadians that own Bitcoin jumped from 2.9 to 5.0 per cent between 2016 and 2017. During the same time period, the percentage of Canadians that are aware of Bitcoin rose from 64 to 85 per cent. The Bank of Canada says that the statistics and data released in the report came at an interesting time for Bitcoin as the price of the cryptocurrency hit an all-time high of $25,497 (BTC to CAD) on December 17, 2017. By contrast, the price of BTC to CAD at the start of 2016 was just $599.77, meaning that the price of Bitcoin in Canadian dollars increased by over 425 per cent in only two years. At the time of this article was published, the price of BTC to CAD was $12,310.
The growing adoption of cryptocurrencies in Canada and around the world can be attributed mainly to the many benefits and inherent characteristics of cryptocurrency and blockchain technologies. The benefits of cryptocurrencies include lower transaction costs as the result of not needing a third-party or financial intermediary like a government or bank to complete transactions. Transactions using cryptocurrency can be conducted anywhere in the world, quickly and anonymously. Giving an estimated 2.5 billion people access to a financial platform for the first time. Cryptocurrencies do not have a single point of failure. Meaning they cannot be shut down, controlled or censored by any national government.
Regarding the benefits of digital currencies, the Governor of the Bank of Canada Stephen Poloz told CNBC in an interview, “One of the most important aspects of Bitcoin is the distributed ledger technology that I think is a true piece of genius and it will be applied to many areas in the economy. Incredible efficiencies, this is truly huge.”
As a result, many nations, including Canada, are exploring different ways to participate in digital currencies to incorporate the benefits of the technology into their existing financial frameworks while also trying to minimize the dangers digital currencies pose towards destabilizing existing fiat-based financial and monetary systems.
In an internal presentation made to governor Poloz and the Bank of Canada’s Board of Directors that was obtained by media outlet The Logic, it has been revealed that the Bank of Canada is currently considering launching its own national digital currency.
The Bank of Canada’s exploration into creating a national digital currency has a dual mandate of attempting to make the national currency more efficient while also providing Canadians with an alternative to existing decentralized cryptocurrencies. The new digital currency could eventually replace paper money in Canada, although during the initial stages, the new digital currency is meant to exist side by side with the Canadian dollar.
The Bank of Canada says creating a digital currency will give the federal government enhanced control over the existing financial system as the new digital currency will be more traceable than cash. The ability to more closely monitor the new digital currency will allow the police and the Canada Revenue Agency (CRA) to track transactions more efficiently and effectively.
The Bank of Canada also hopes that a new national digital currency could eliminate the direct threat cryptocurrencies pose to existing financial and monetary systems by having the ability to track and monitor transactions. Having a transparent and traceable digital currency would also prove useful by providing the government with more data about how Canadians spend their money.
The Logic reporter Zane Schwartz told the CBC that the ability to more closely monitor the transactions of Canadians raises new privacy concerns. Schwartz points out that under the current system, authorities need a warrant to access the spending information held by an individual’s bank. Schwartz went on to say that the introduction of a new digital currency could mean that Canadians might not have any way of knowing if their spending information has been accessed by the police, government, or tax authorities. Canadians could also be in the dark in terms of knowing how their spending information is used or shared by the government.
In a statement to the CBC radio show The Current, the Bank of Canada said, “Any potential system would need the support of government and would have to comply with Canadian privacy laws. The public values privacy and this is an important feature we would seek to maintain in designing a Canadian banking digital currency."
Canada is not the only G8 power to consider a central bank digital currency (CBDC). Earlier this year, Forbes reported that the Chinese Central Bank is on the verge of releasing its own cryptocurrency, possibly as early as later this year. The currency is set to be released to seven Chinese institutions who are all amongst the most prominent players in the Chinese economy.
According to Forbes’ sources, the institutions involved in the initial release of the cryptocurrency will have the responsibility of dispersing it to 1.3 billion Chinese citizens and others doing business in the renminbi. Sources went on to tell Forbes that the Chinese Central Bank hopes to make the currency available in the United States but noted that it would take a significant amount of time to materialize.
An anonymous source claiming to have formerly worked for the Chinese government involved in the cryptocurrency’s development told Forbes that the technology behind the cryptocurrency has been ready since last year and could be set to launch by the end of 2019. The source speculated that the launch of the currency could coincide with China’s most important day for online shopping (known as Singles Day) on November 11.
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