Bank of Canada releases discussion paper on merits and risks of digital currency
CALGARY The Bank of Canada is considering the merits and risks of digital currencies as interest in cryptocurrencies like Bitcoin reaches a fevered pitch.
In a research paper released by the central bank Thursday, report authors Walter Engert and Ben Fung said there are merits to creating a central bank digital currency as society starts to move away from cash, and the bank’s potential to reap profits off issuing that cash could be threatened.
The staff discussion paper, which doesn’t necessarily reflect the views of the bank, said a central bank digital currency (CBDC) could become a cheaper alternative to debit and credit cards and other forms of payment, making it easier for competition to emerge in the retail and largevalue payment sectors.
“With no transaction fees charged by the central bank, the benchmark CBDC would probably be less expensive for merchants than cash and credit cards.”
The report, which discounted some of the other proposed benefits of a digital currency such as reduced criminal activity, said that given the complexity and uncertainty around the currency’s potential that central banks should proceed incrementally and cautiously.
The findings echo a bank report in March that looked into the potential of using the decentralized blockchain technology that underpins the digital currencies in clearing financial transactions.
The report said there are potential cost-savings and the system has already advanced from early days, but that the net benefits didn’t match those of the existing centralized system, and that the added complexity of the proposed system could lead to increased operational risk.
But while financial institutions continue to strike a cautious note towards cryptocurrencies and the blockchain technology that underpins it, investors are piling in.
The value of Bitcoin, the most well-known cryptocurrency, has surged from about US$1,000 per coin at the start of the year to more than US$11,000 per coin this week, while Ether has gone from under US$10 to over US$400.