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'Big implications' if the Bank of Canada releases its own cryptocurrency

‘Big implications’ if the Bank of Canada releases its own cryptocurrency

The Bank of Canada has spent years thinking about whether to introduce a digital currency, but so far it hasn’t seen the need to do so.

In a briefing note last January, officials warned Finance Minister Chrystia Freeland that issuing a central bank digital currency would have an impact. Long-term effects on the economy and the financial system and Bank of Canada operations.

The documents also show that the central bank held a series of meetings with federal officials during 2020 to assess the implications of a digital looney over ministries and agencies.

Large swaths of documents obtained by the Canadian Press have been redacted under the Freedom of Information Act because the department claims they contain sensitive government information.

But what’s left points to some federal concerns about a digital currency that the central bank and administrations would like to provide more comments before making a decision.

The Bank of Canada has stepped up its pace of action on digital currency, reflecting the efforts of its peers in other countries as the COVID-19 pandemic accelerates the transition to the digital economy.

The bank only plans to issue digital currency if the use of banknotes for transactions decreases and one or more private cryptocurrencies, such as Bitcoin, become widely used in Canada.

Bitcoin Automated Teller Machine.

Photo: Radio Canada

The government and central bank have paid more attention to stable cryptocurrencies that are less volatile in terms of value and are linked to cash and government securities.

Jeremy Kronik, associate director of research at CD Howe Institute, said that the use of private cryptocurrencies in Canada pegged to the US dollar would strain the ability of the Bank of Canada to manage monetary policy in the country’s favour.

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He said the bank should encourage private cryptocurrencies to use the Canadian dollar.

The government can undo this thing in a second. The government can only say, forget it, you can’t do business in CanadaJeremy Kronick, who recently co-wrote an article on the advantages of the Bank of Canada’s digital currency system, said.

I don’t think they want that because there are benefits to private cryptocurrency that people love, but we also want to keep the public good function. To do this, I think a central bank digital currency is the way to go.

Central bank research indicates that the likelihood that people will use Bitcoin is linked to its prevalence – the more people adopt it, the more likely it is that others will follow – as well as users’ optimism about Bitcoin’s future.

The document released in November indicated that Bitcoin adoption in Canada remains low at around five percent. The authors suggest that young Canadians may be more likely to use bitcoin because it is easier for them to buy the digital currency than to open an official bank account.

The Bank of Canada does not have the legislative power of Parliament to introduce a digital currency, it can only design it.

Caution governments

The Ministry of Finance has reviewed legislation on central bank digital currency, although an email from March indicated that no other country has it. Intentionally changed the legislation to delegate one.

The email mentioned that even in Sweden, It is widely considered to be at the forefront of the movement towards a central bank digital currency among advanced economiesThe government is awaiting a report at the end of next year on whether the central bank should have the authority to issue such a currency.

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How quickly Canadian officials act will likely depend on how quickly the major stablecoins are deployed.Jeremy Kronick said. He particularly highlighted the stable cryptocurrency that Facebook had predicted, as it would be easily adopted by users of the social media giant.

I wish they could move forward, but governments are notorious for being slow until they have to., he added.