Bank of Canada looking into digital currency
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 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.
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, making it easier for competition to emerge in the retail and large-value 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 benefits of a digital currency such as reduced criminal activity, said given the complexity and uncertainty around the currency’s potential 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. 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 the added complexity of the proposed system could lead to increased risk.
But while financial institutions continue to strike a cautious note toward 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. This year’s frenzy is in part because of the launch of the Ethereum platform in 2015 that allows companies to build applications based on the blockchain, said Alan Wunsche, chair of industry group Blockchain Canada.
The platform, which uses Ether for transactions, made it easier to create and try new uses of the decentralized system. The system has led to lots of experimentation, including by banks, with some of those showing real potential last year and helping boost valuations this year, Wunsche said.