The Bank of Canada has presented a positive case for issuing a central bank digital currency, saying it could be an effective competition policy tool and necessary to support innovation in the digital economy, as outlined in a recent report.
Fast facts
- Current problems in Canada’s economy related to competition and wealth distribution were likely to worsen, the report argued, without a public digital payment option being made available. “With the increased digitalization of the economy, cash is becoming less relevant as an outside option for payments, increasing the potential for abuses of market power in payments,” the report said.
- While outlining the positive case for CBDCs, the report also laid out two scenarios that would have to be emerge before one was issued. The first being if citizens stopped using cash widely, which could have adverse effects on certain sections of the community. What threshold of non-participation would have to be met was not mentioned, but the bank also reiterated its commitment to providing cash services as long as there was sufficient demand in the country.
- The second was if the adoption of digital currencies, public or private, were to become so widespread as to threaten the sovereignty of Canada’s existing currency. This would be a threat because such a currency would be outside the jurisdiction of Canadian regulators, and could impact their ability to determine economic policy inside the country.
- “In the context of the difficulty of regulating payment networks, a CBDC could be a simpler competition policy tool because it would provide an alternative low-cost payment instrument for customers and merchants. This would help bring down the interchange fees charged by the established networks,” the report said.