Highlights:
- Canada doesn’t think there’s a need for a central bank digital currency right now
- But the need may arise if cash usage declines or a private stablecoin gains traction
- Or if another country’s CBDC could threaten Canada’s monetary sovereignty
- Canada isn’t just planning a prototype. It wants to be operationally ready to move quickly
- Regulations that slow the pace of innovation will help central banks to catch up
On Tuesday, the Deputy Governor of the Bank of Canada, Timothy Lane, gave a speech that outlined scenarios in which Canada might consider a central bank digital currency (CBDC). Based on a paper published simultaneously, we conclude that if the U.S. announces plans for a CBDC, Canada might do so as well.
Lane noted that currently, there is not a compelling use case for Canada to issue a CBDC. However, he acknowledged that the situation could change rapidly. The two most likely events that would trigger the need for a CBDC would be a significant reduction in cash usage, or if a private stablecoin (such as Libra) gains traction.
But the central bank also published a paper that added another scenario of a foreign CBDC gaining extensive cross-border use in Canada. A small footnote says: “Until now, examples where an alternative currency has challenged the dominant position of the official currency of a jurisdiction have been restricted to cases where the state was facing severe social and political stress from other sources.”
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