Bank of Canada studying issues around central bank 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 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 US$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. “As the underlying technologies and the design of crypto products evolve, we need to be ready to reassess how they might affect financial stability,” he said. “Some potential aspects include the integrity of payment systems, bank business models, and the exposures of financial institutions and infrastructures.”