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A central bank digital currency is “probably necessary” for a competitive digital economy, the Bank of Canada said in a staff paper published Tuesday.
- A CBDC would give consumers a non-bank option to store their money risk-free, increasing competition in the market for retail deposits, argue the authors of the paper, titled “The Positive Case for a CBDC.”
- A digital currency would also allow users to bypass payment services providers such as credit cards, which antitrust watchdogs globally have said exhibit anticompetitive practices, the central bank said.
- The digital currency might be a “measured path” to combat big tech monopolies and negative externalities “at least” in payments, the authors argue.
- Central banks around the world are studying the feasibility of a digital currency, with China having made the most progress. The total number of transactions using the digital yuan as of the end of June was 70.75 million, spread among almost 21 million personal wallets and 3.5 million enterprise wallets, the People’s Bank of China said in a progress white paper last week, in which it confirmed smart contract programmability.
- The Bank of Canada paper argues that CBDCs endowed with programmability through smart contracts will engender vibrant innovation and competition in digital services.
- The bank also noted that smart contracts come with risks: software bugs, vulnerability to cyber attacks, scalability issues, and the difficulty of bringing off-chain data into the blockchain.
- The central bank reiterated its previous position that there are two potential scenarios under which it might issue a CBDC in Canada: either because cash was no longer widely used in Canada, or because an alternative digital currency was so widely used that it threatened the country’s monetary sovereignty. The bank said the latter scenario is unlikely.
- But even if a CBDC is issued, anticompetitive regulation will likely still be necessary, the paper said.
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