Bank of Canada Governor Tiff Macklem spoke yesterday about a potential Canadian central bank digital currency (CBDC). Next year the bank plans to consult the public on a potential CBDC. Particularly they want to find out what the public’s expectations of a digital currency and what features would be important to them.
As part of the central bank’s R&D into digital currency, it is moving from the research phase into the development phase to be prepared if the need arises to issue a CBDC. However, the Governor made clear that a decision on whether to issue a CBDC is up to parliament.
Macklem outlined three drivers that could result in the launch of a retail CBDC.
First off would be a dramatic decline in the usage of cash. That said, cash in circulation is growing in Canada, although not quite at the pace of nominal GDP. “We could lose control over our own monetary sovereignty if they start to use other digital currencies,” said Macklem, likely referring to foreign CBDCs, given his next point.
Another motivation is if Canadians heavily adopted a private sector stablecoin, particularly one not denominated in Canadian dollars. Because this would also challenge monetary sovereignty. Macklem referred to the abandoned Diem project initiated by Facebook/Meta as an example.
Dollarization through digital currency has been a concern for the central bank for some time. In early 2020 the central bank stated a U.S. CBDC might be a trigger for a Canadian digital dollar. And the sentiment was reiterated later that year at an EU conference.
The Governor acknowledged that the decline in cash usage and sovereignty threats are both defensive motivations. On a more positive note, he believes that in time as the economy becomes ever more digital, it might be sensible to provide Canadians with a CBDC option.
Meanwhile, the MIT Media Lab Digital Currency Initiative (DCI) is working with the Bank of Canada as part of its research work. The DCI is also working with the Federal Reserve Bank of Boston on Project Hamilton and the Bank of England.
Amongst other research, last year the Bank of Canada ran a CBDC design challenge with three universities with some interesting results.