In remarks at the CFA Montreal FinTech RDV 2020, Bank of Canada deputy governor Timothy Lane confirmed that the central bank is preparing for a possible future in which it might have to issue a central bank digital currency (CBDC). While he claimed that there is no current need to issue a CBDC, he acknowledged that it was important to be prepared in case evolving circumstances make it necessary to do so in the future.
Lane described the bank’s contingency planning by first noting that growing changes in the economy, e-commerce, and cash usage could create a future in which cash becomes too costly for merchants to use. He cited Sweden and Norway as examples of societies where even banks have started to scale back cash processing services. In addition, he pointed to cross-border payment challenges, and transaction costs for family members living in different nations as examples of current payment challenges.
To help ensure a reliable payment system for Canadians, the central bank intends to focus on strengthening access to bank notes, updating the country’s payment system, and developing an appropriate framework for regulating private digital currencies and stablecoins.
According to Lane, there are scenarios that could cause the central bank to issue a CBDC. The first scenario would occur if Canada reached a “topping point where cash could no longer be used for a sufficiently wide range of transactions” – reducing Canadians’ access to economic activity and payment systems. The second scenario would involve mass adoption of private digital currencies that might directly challenge Canadian monetary sovereignty.
Lane noted that any Canadian-issued CBDC would be a digital currency “that is designed, issued and distributed by an organization that is guided by the interest of the public good, rather than profit; that is safe, resilient, universally accessible and private—just like cash; and that is backed by a central bank’s balance sheet and its reputation for preserving the value of our money.”