The Bank of Canada doesn’t currently have cause to issue a digital currency, but it can envision a future where it may need to be ready to do so, an official from the central bank suggested on Friday.
Deputy governor Timothy Lane said during an event at the Federal Reserve Bank of Philadelphia that the Bank of Canada has conducted research over the past few years about whether the central bank should try to create a digital currency.
“I think the conclusion when we think about it is that we can’t really see a compelling reason for doing it under current circumstances, but we can plausibly see the world changing in a way that could actually make it something we’d want to consider very seriously and, in fact, be ready to do if those circumstances arose,” Lane said.
Such a scenario may arise if private digital currencies start to get major traction in the economy and become more widely used for transactions, Lane said.
“We’re actually now at a bit of an inflection point where we’re kind of moving from research to something that feels a lot more like contingency planning, because we’re aware that the world can change very quickly,” the deputy governor added. “Although we don’t think that Bitcoin is the money of the future — we think that it’s got too many flaws in its design to be that — but at the same time, the world could change in a way that would very rapidly transform the way that people pay for things. And if we start to think about what we might do in reaction to that when that starts to become evident, then that’s going to be too late.”
The Bank of Canada has already conducted some experiments — in May it was announced the bank and the Monetary Authority of Singapore sent each other digital currencies via blockchain — but it is just one of several central banks around the world examining the idea of a digital currency, a trend that has become more pronounced in the wake of Facebook Inc. unveiling the idea for its Libra cryptocurrency. Consumers also continue to buy and sell volatile cryptocurrencies such as Bitcoin, and are opting more and more to use cards and digital forms of payment over more traditional cash.
Bank of Canada senior deputy governor Carolyn Wilkins co-authored a paper in February that noted “the emergence of cryptocurrencies, paired with a declining use of cash in transactions, has increased interest in the question of whether a central bank should issue its own digital currency.”
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However, it added that “a number of important policy and design questions” would need to be answered before deciding whether a central bank digital currency would be in the public’s interest, such as the effect on bank business models.
Lane said Friday that if the central bank ever were to issue a digital currency, there would need to be “safeguards” aimed at addressing concerns about money laundering or other illicit uses.
“In our view, it’s kind of unthinkable that a central bank would be allowed to design a product that would become the ideal and perfectly scalable means for doing all those things,” he said.