Bank of Canada taking it slow with digital currency

CALGARY — The Bank of Canada is looking at the key questions around the design of a digital currency and the issues surrounding such an idea, a senior Bank of Canada official said Monday.

However, deputy governor Timothy Lane told a University of Calgary audience that unless the risks associated with a central bank digital currency can be managed through appropriate design, the bank would not recommend issuing such a currency.

“The design of a CBDC has important implications for its risk and benefits,” Lane said, according to the prepared text of his speech that was released in Ottawa.

“Some major reasons for caution about a central bank digital currency are concerns that it could become a vehicle for illicit transactions or that it could have significant negative implications for financial intermediation.”

Lane said the central bank uses the term cryptoassets to describe cryptocurrencies because they do not do a good job of performing the basic functions of money. The value of bitcoin has swung wildly with it topping US$20,000 last year and now trading around $6,000.

However, Lane said, as cryptocurrencies evolve they may touch on the central bank’s core functions, including monetary policy, financial stability, payments and currency.

He said the Bank of Canada is not responsible for regulating cryptocurrencies, but it has been examining the potential impact on the stability of the financial system.

Earlier this year, Bank of Canada senior deputy governor Carolyn Wilkins called on authorities to work toward a set of globally aligned policies governing cryptocurrencies.

She said it was important to have a strategy on cryptoassets that was as consistent as possible across countries.

Lane said differences in regulations around the world, together with the incomplete regulations in many jurisdictions,

‘‘ “Some major reasons for caution about a central bank digital currency are concerns that it could become a vehicle for illicit transactions.” TIMOTHY LANE Bank of Canada

leaves room for regulatory arbitrage.

“Differences in the regulatory treatment of these products for controlling money laundering and terrorist financing are a particularly pressing concern,” he said.

Lane said cryptoassets don’t yet pose financial stability risks, but things are evolving rapidly as they grow in size, complexity and interconnectedness.