In a significant shift, Canada’s central bank, the Bank of Canada, has announced that it is scaling down its work on a retail central bank digital currency (CBDC) and pivoting its focus to broader payments system research and policy development. This decision comes after years of exploration into the potential of a “digital Loonie” and extensive public consultation on the matter, which has been a major topic in recent CBDC news.
Canada’s Retail CBDC Journey
The Bank of Canada, one of the major Canada banks, first launched its CBDC research in 2017, driven by the rapid digitalization of payment systems and the need to maintain monetary sovereignty in a cashless society. Over the years, the central bank undertook significant digital currency research to understand the implications of introducing a retail CBDC, including potential benefits and risks, as well as the differences between CBDC vs cryptocurrency.
Shifting Priorities
However, the bank has now announced that it is “scaling down its work on a retail CBDC and shifting its focus to broader payments system research and policy development.” This decision follows the completion of the bank’s initial CBDC research and the emergence of other pressing payments issues that have gained prominence, which could impact Canada monetary policy.
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Reasons Behind the Shift
Several factors appear to have contributed to the bank’s decision to move away from a retail CBDC. Firstly, the bank’s own staff discussion paper, published earlier this summer, highlighted the potential benefits of a CBDC in maintaining monetary sovereignty and financial stability in a cashless society. This suggests that the Canadian central bank’s initial research had identified potential use cases for a digital currency.
Public Consultation and Privacy Concerns
Additionally, the bank’s public consultation process, which received nearly 90,000 responses by the end of 2023, revealed that many Canadians had CBDC privacy concerns about a digital currency. This feedback likely played a significant role in the bank’s decision to scale down its retail CBDC efforts, and may prompt some to consider how to avoid CBDC.
Global CBDC Landscape
Canada’s decision to shift its focus comes at a time when more than 130 countries are exploring CBDCs, according to the Atlantic Council and CBDC international comparisons by organizations like the Bank for International Settlements. However, only three nations – the Bahamas, Jamaica, and Nigeria – have fully launched such digital currencies. The slow pace of CBDC adoption timeline highlights the complexity and potential risks associated with retail CBDC implementation into established financial systems.
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Preserving the Traditional Monetary System
According to Karl Schamotta, Chief Market Strategist at Corpay, “A digital Loonie doesn’t offer many advantages right now,” and preserving the safety and tested features of the traditional monetary system remains a priority for the Bank of Canada. The bank is considering the CBDC economic impact and appears to have a contingency plan in place.
Continued Monitoring and Future Potential
Despite scaling down its retail CBDC work, the Bank of Canada, a leader in Canada financial technology and digital initiatives, has stated that it will “continue to monitor global retail CBDC developments and publish some related research.” The bank also said there would “be further opportunities for Canadians to provide input on a potential digital dollar,” and that all the research done so far would be “invaluable if, at some point in the future, Canadians…decide they want or need a digital Canadian dollar.”
Broader Payments System Focus
In addition to monitoring CBDC developments, the Bank of Canada is shifting its focus to broader payments system research and policy development. This includes working with Payments Canada on the modernization of Canada’s wholesale payments infrastructure through initiatives like the Real-time Rail payment system. The bank is also collaborating with the Massachusetts Institute of Technology Media Labs on Project Jasper, a wholesale CBDC proof-of-concept.
Furthermore, the Bank of Canada is actively involved in shaping the regulatory landscape for Canada digital payment systems. The Retail Payment Activities Act, which came into effect in 2021, aims to regulate payment service providers and ensure the safety and efficiency of the payments system. The bank is also working on enhancing cross-border payments, payment clearing and settlement systems, and addressing other pressing payments issues.
These efforts align with the bank’s mandate to promote the stability and efficiency of the financial system, while considering the public interest case for CBDCs and other digital payment innovations. The bank is also focusing on strengthening operational risk standards and Anti-Money Laundering provisions in the evolving payments landscape.
Conclusion
The Bank of Canada’s decision to shift its focus away from a retail CBDC and towards broader payments system research reflects a pragmatic approach to addressing the evolving financial landscape. By prioritizing the preservation of the traditional monetary system and exploring a wider range of payments-related issues, the bank aims to ensure the continued relevance and stability of Canada’s financial infrastructure in the digital age. As the global CBDC landscape continues to evolve, the Bank of Canada’s research and policy development efforts will play a crucial role in shaping the future of digital payments in the country.
Disclaimer: The information provided in this article is for informational purposes only and does not constitute financial advice. Investing in cryptocurrencies involves risks, and readers should conduct their own research and consult with financial advisors before making investment decisions. Hash Herald is not responsible for any profits or losses in the process.
