Bank of Canada May be Considering a CBDC to Track User Spending
At this point in time, most of the world’s governments and central banks are considering the benefits and disadvantages of central bank digital currencies. According to recent reports, it seems like the Bank of Canada is also going through a similar process.
With this in mind, a recent presentation leads us to believe that the Bank of Canada is studying the implications of launching a state-owned virtual currency, to help deal with the direct threat posed by digital currencies, while also allowing public authorities to learn more about how residents spend their money.
The presentation was reportedly prepared for the bank’s governor, and features data related to how the coin would work, alongside its main advantages. The idea here is to build a CBDC that can be used throughout the world – the first step would be to release it while cash is still around, whereas the long-term goal is to help replace cash and coins altogether.
The presentation is the result of a two-year research programme into the advantages and disadvantages of central bank digital currencies. It also comes at the right time, given that both governments and corporations worldwide are planning to launch their own centralized stablecoins.
According to the presentation, innovation is key to maintaining your status-quo as a big player on the financial market. Therefore, the Canadian CBDC would offer the benefits that are generally associated with assets backed by banks, while also introducing the advantages of secure and cheap e-payments. At this time, it is unknown whether the CBDC would be based on blockchain technology, like most other cryptocurrencies.
The presentation also includes a few notes on how the CBDC could be used to track people’s spending, and thus help reduce money laundering. Therefore, in the case of suspicious activity or a police investigation, data on payments could be easily shared with tax authorities and law enforcement.
However, CBDCs also pose several risks, as outlined in the presentation. For instance, it may affect low-cost and stable funding costs for bank deposits, while also hurting the bank’s reputation in case of low-popularity or if abused by criminals.
Currently, research is still on-going; therefore it is quite clear that Canada will not be the world’s first country to launch a fully-fledged central bank digital currency. Since banknotes are bound to disappear in the near future, financial institutions are desperate to maintain their control over the market, without giving up their monopole on currency. This argument may explain the recent trends concerning CBDC development.
Only in the long run will we see whether traditional cryptocurrencies will reach maturity, and thus be mass-adopted worldwide.