In a major shift, Canada’s central bank, the Bank of Canada, has decided to Advertise The Canadian government has announced that it is scaling back its work on a retail central bank digital currency (CBDC) and shifting its focus to broader payments systems research and policy development. The decision comes after years of exploration into the potential of a “digital Canadian dollar” and extensive public consultation on the issue, which has been a major topic in recent CBDC news.
Canada’s CBDC Retail Journey
The Bank of Canada, one of Canada’s largest banks, first launched CBDC Research in 2017Driven by the rapid digital transformation of payment systems and the need to maintain monetary sovereignty in a cashless society, the central bank has conducted significant research on digital currency over the years to understand the implications of introducing a CBDC to retail, including the potential benefits and risks, as well as the differences between CBDC and cryptocurrencies.
Changing priorities
However, the bank has now announced that it is “scaling back its work on a retail CBDC and shifting its focus to broader payments systems research and policy development.” This decision comes after the bank’s initial CBDC research was completed and other pressing payments issues emerged that have gained prominence and could impact Canadian monetary policy.
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Reasons behind this shift
Several factors appear to have contributed to the Bank’s decision to move away from a retail CBDC. First, a staff discussion paper published earlier this summer highlighted the potential benefits of a CBDC in maintaining monetary sovereignty and financial stability in a cashless society. This suggests that the Bank of Canada’s initial research has identified potential use cases for a digital currency.
General Advice and Privacy Concerns
Additionally, the bank’s public consultation process, which received nearly 90,000 responses by the end of 2023, revealed that many Canadians have concerns about the privacy of a CBDC. These comments are likely to play a significant role in the bank’s decision to scale back its retail CBDC efforts, and may prompt some to consider how to avoid a CBDC.
The Global CBDC Landscape
Canada’s decision to shift its focus comes at a time when more than 130 countries are exploring central bank digital currencies, according to the Atlantic Council and international comparisons of central bank digital currencies by organizations such as the Bank for International Settlements. However, only three countries — the Bahamas, Jamaica and Nigeria — have fully launched such digital currencies. The slow pace of the CBDC adoption timeline highlights the complexity and potential risks associated with implementing retail CBDCs into existing financial systems.
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Maintaining the traditional monetary system
“A Canadian digital currency doesn’t offer many advantages at the moment,” says Karl Schamuta, chief market strategist at Corpay, and maintaining the security and proven features of the traditional monetary system remains a priority for the Bank of Canada. The bank is studying the economic impact of a central bank digital currency and appears to have a contingency plan in place.
Continuous follow-up and future potential
Despite scaling back its CBDC work, the Bank of Canada, a leader in fintech and digital initiatives in Canada, said it “will continue to monitor CBDC developments globally and publish relevant research.” The bank also said that “there will be further opportunities for Canadians to provide input on a potential digital dollar,” and that all the research conducted so far will be “invaluable if Canadians decide at some point in the future… that they want or need a digital Canadian dollar.”
Focus on the broader payments system
In addition to monitoring CBDC developments, the Bank of Canada is shifting its focus to broader payments systems research and policy development. This includes working with Payments Canada to modernize Canada’s wholesale payments infrastructure through initiatives such as the Real-time Rail payment system. The Bank is also collaborating with MIT’s Media Lab on Project Jasper, a proof of concept for a wholesale CBDC.
In addition, the Bank of Canada is actively involved in shaping the regulatory landscape for digital payments systems in Canada. The Retail Payment Activities Act, which came into effect in 2021, aims to regulate payment service providers and ensure the safety and efficiency of the payments system. The Bank is also working to strengthen cross-border payments, clearing and settlement systems, and address other pressing payments issues.
These efforts are in line with the Bank’s mandate to promote the stability and efficiency of the financial system, while taking into account the public interest in relation to central bank digital currencies and other digital payment innovations. The Bank is also focused on strengthening operational risk standards and anti-money laundering provisions in the evolving payments landscape.
conclusion
The Bank of Canada’s decision to shift its focus away from retail CBDC and towards broader research into payments systems reflects a pragmatic approach to addressing the evolving financial landscape. By prioritizing the preservation of the traditional monetary system and exploring a broader range of payments issues, the Bank aims to ensure the continued relevance and stability of Canada’s financial infrastructure in the digital age. As the global CBDC landscape continues to evolve, the Bank of Canada’s research and policy development efforts will play a critical role in shaping the future of digital payments in the country.
Disclaimer: The information contained in this article is for informational purposes only and does not constitute financial advice. Investing in cryptocurrencies involves risks, and readers should conduct their own research and consult with their financial advisors before making investment decisions. Hash Herald is not responsible for any profits or losses in this process.
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