Money Bank of Canada to create its own digital currency as 'contingency,' deputy says

23:20  25 february  2020
23:20  25 february  2020 Source:   msn.com

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Deputy governor Timothy Lane said during an event at the Federal Reserve Bank of Philadelphia that the Bank of Canada has conducted research over the past few years about whether the central bank should try to create a digital currency . “I think the conclusion when we think about it is that we can’t

The Bank of Canada sees two main scenarios where it could decide to issue its own digital currency : firstly, if the use of cash is restricted or eliminated, and second, if private cryptocurrencies were to make “In both scenarios, there would be an argument for the Bank of Canada to step in,” said Lane.

a person walking down a street © Provided by The Canadian Press

The country's central bank plans to lay the foundation for its own digital currency as a backstop should the day arise where cash is no longer king, a Bank of Canada deputy says.

In a speech in Montreal, deputy governor Timothy Lane said there isn't a compelling case to issue a central bank-backed digital currency right now.

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But the timeline to create one is long enough that the Bank of Canada is beginning work in the event the Canadian dollar isn't used for most transactions.

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The People’s Bank of China, the country’s central bank , is reportedly developing its own digital currency in response to Facebook’s Libra. Wang said that the bank decided to create its own digital currency specifically because of the unclear role of the United States dollar once Libra is

Central banks across the developed world, including the Bank of England and the Bank of Canada , are studying the potential of introducing a digital currency . Proposals to create a bitcoin-like central bank currency could meanwhile lead to resentment from the actual supporters of bitcoin who claim

Lane said Tuesday that such as situation could erode competition in the financial services sector and consumer privacy, as well as exclude marginalized populations from fully participating in the economy.

He added the bank could issue its own cryptocurrency if private digital currencies or those offered by other central banks become widely used in Canada and erode the Bank of Canada's ability to manage monetary policy.

There are still several steps to go through before the Bank of Canada can issue a digital offering, including settling on the technology to use and getting the legal authority from Parliament to do so.

"It is clear that technology is changing the world around us. And while we cannot perfectly predict the future, we can certainly plan for contingencies," said Lane, based on a text of his speech released in Ottawa.

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The Bank of Canada (BoC) is thinking about developing a digital currency that would eventually replace fiat money completely, according “Cryptocurrencies may become a direct threat to our ability to implement monetary policy and lender of last resort (LOLR) role,” the BoC says in its presentation.

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"This includes readying ourselves in case a decision is made some day to issue a Bank of Canada digital currency."

The Bank of Canada has spent six-plus years researching the economic and technological impacts of the growth of volatile digital currencies like Bitcoin, and more recently watched the growth of "stablecoins" that maintain a stable value, as the name implies, and are backed by currency holdings.

Lane says these stablecoins — of which there are about 150 worldwide — have a better prospect for widespread adoption, including Facebook's proposed Libra that the social media giant plans to launch. And that could in turn make it more difficult for the bank to hit its inflation targets.

"It would become increasingly difficult to control the stability of the purchasing power of the Canadian dollar," Lane said in a question-and-answer session following the speech.

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The central bank of Canada is considering launching a sovereign digital currency that would eventually replace cash and combat the “direct threat” The Bank of Canada , which began researching digital currencies in 2013 according to the Financial Post, said in its latest presentation

Bank of Canada staff discussion papers are completed staff research studies on a wide variety of subjects Central Bank Digital Currencies : A Framework for Assessing Why and How. by. Ben S. C. Fung For example, a digital currency ’s design could affect its demand and its likelihood of being

"And since our mandate is the stability of the purchasing power, this would considerably limit the role of Canadian institutions to control their own inflation rate and to actually have an influence on their own macro-economy."

As it stands, the Bank of Canada can design, issue and distribute the bills Canadians hand over when buying a cup of coffee, but it doesn't have the legislative authority from Parliament to offer a digital currency.

Discussions are expected to begin with the Finance Department about the scope of any legislative changes, and how that might affect the design of a central bank digital currency.

"Of course, even such a shift toward a cashless society does not automatically mean the bank would issue a (digital currency)," Lane said in the speech to a financial technology conference in Montreal.

"That's a choice that Canadians and their elected representatives would need to make at the time."

There are also important design options for the central bank to consider, including how to prevent money laundering and terrorist financing and ensure a digital currency doesn't promote a bank run.

Other issues to manage include how to allow anyone in the country to use the digital currency, including people who don't have bank accounts or those living in remote communities where online access is limited.

This report by The Canadian Press was first published Feb. 25, 2020.

Jordan Press, The Canadian Press

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