The Bank of Canada has become the latest central bank from a major economy to launch a consultation on a potential central bank digital currency (CBDC).
The public consultation on features that could be included in a digital Canadian dollar opened this week and runs until 19 June. A report will then be published ‘later this year’.
The central bank wants to understand ‘which features are most important to Canadians’, it explains, adding that it is also seeking opinions on topics such as how people would likely use it; security features; and what concerns citizens have about accessibility and privacy.
The authority emphasises that ‘at this time, a digital Canadian dollar is not needed’ and that any decision to issue one is for the government and parliament. It also emphasises that if a digital Canadian dollar is issued, the Bank of Canada will continue to provide bank notes and that ‘cash isn’t going anywhere’.
“As Canada’s central bank, we want to make sure everyone can always take part in our country’s economy. That means being ready for whatever the future holds,” said Bank of Canada senior deputy governor Carolyn Rogers. “We want to hear from Canadians about what they value most in the design of a digital dollar. This will help us make design choices and ensure that it is secure, reliable and meets the needs of Canadians.”
RELATED ARTICLE Central bank digital currencies’ financial inclusion challenge – a Global Government Fintech webinar on 7 February 2023 featured Bank of Canada’s senior special director for fintech Scott Hendry among the panellists
Privacy and offline payments questions
The consultation takes the form of a multi-stage online questionnaire.
It states that privacy ‘would be a key feature of a digital Canadian dollar but would have to be balanced with other priorities’. It lists features ‘that may be of importance to you’, with people asked to rank them.
Those features are: ability to control who in the private sector has access to their personal information (for example, retailer, payment service provider); ability to hold a limited amount of money anonymously; ability to make transactions where personal information is protected but in compliance with money-laundering and terrorist financing laws and regulations; ability to control who in the private sector has access to their transaction data (for example, financial institution, payment service provider); ability to recover lost or stolen money based on personal information; ability to give, refuse or withdraw consent to the use of their personal information; and ability to receive a limited amount of money anonymously.
The topic of offline payments is also addressed, with respondents asked how interested they would be in ‘having a payment method, in addition to cash, that works offline when the internet is down or there is a power outage’. Responses between ‘very interested’ and ‘very uninterested’ can be entered (‘don’t know’ is also an option).
Other questions asked include whether those completing the online form ‘use or hold cryptocurrencies (e.g. bitcoin)’, while respondents are also asked whether they ‘trust the Bank of Canada to issue a digital Canadian dollar that is secure, meaning it is resistant to cyberattacks, can’t be stolen or tampered with.’
Canada’s CBDC progress
The consultation’s launch comes six months after the central bank’s governor Tiff Macklem said the central bank was ‘moving more from the “R” part of “R&D” [research and development] to the “D” part’ in terms of its CBDC work.
The Ottawa-headquartered authority described itself as ‘ramping up contingency planning’ in February 2021, at the time publishing three CBDC design proposals from the University of Calgary, McGill University and the University of Toronto/York University (Toronto).
The central bank had set out one year previously (in February 2020) how – ‘as a contingency plan only’ – it was ‘building the capacity to issue a retail, cash-like CBDC should the need to implement one ever arise’. But it said that ‘significant work’ was required to achieve such a state of readiness. ‘In the years ahead, the Bank will conduct its work on a CBDC in a transparent manner, with regular consultations with stakeholders at home and abroad and public presentation of conclusions and issues, as they emerge,’ the central bank noted at the time.
Bank of Canada staff have also been co-researching CBDCs alongside officials at the US Federal Reserve, Bank of England, Bank of Japan, Sveriges Riksbank (Sweden), Swiss National Bank, the Switzerland-headquartered Bank for International Settlements (BIS) and European Central Bank. The central banks jointly published an influential report, ‘Central bank digital currencies: foundational principles and core features’, highlighting three ‘key principles’ for a CBDC in October 2020.
As a member of the Group of Seven (G7) nations, Canada was also a contributor to 13 public policy principles for the implementation of retail CBDCs published by the G7 in October 2021.
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UK CBDC consultation ongoing
UK authorities are also currently running a consultation ahead of the potential decision to issue a digital pound. The BoE and HM Treasury issued a long-awaited ‘Digital pound: a new form of money for households and businesses?’ paper in February, with its overarching message being that a British CBDC is ‘likely to be needed in the future’. They also simultaneously issued a ‘Digital pound: technology working paper’, which explores a series of design principles relating to privacy, performance, security, resilience, extensibility and energy usage. The UK consultation’s deadline for responses is 7 June.
The Bank of Canada and BoE share the fact that they have independently collaborated with the Massachusetts Institute of Technology (MIT) MIT Media Lab’s Digital Currency Initiative on CBDC work. The Bank of Canada’s MIT link-up and the BoE’s MIT link-up were announced (separately) in March 2022.
Canada’s central bank teamed up with MIT to explore how advanced technologies could affect the potential design of a CBDC. The central bank said the collaboration would focus on ‘exploring and experimenting with potential technology approaches to determine how a CBDC could work’.
Elsewhere the European Central Bank is in the final four months of a two-year ‘investigation phase’ into the possibility of a CBDC for the 20-member eurozone (a digital euro). On 24 April the ECB published its third digital euro progress report, as well as the findings of focus groups on people’s views on the features of a potential digital wallet.
*** The DCI has announced the launch of a research project on privacy and OpenCBDC titled ‘Scaling privacy-preserving solutions for central bank digital currencies’. OpenCBDC is an open-source project (located on GitHub) for collaborative technical research.
FURTHER READING
Global Government Fintech’s Digital Currencies topic section
Canada to consult on CBDC in 2023 – news story (15 December 2022) on Bank of Canada governor Tiff Macklem looking ahead to the consultation
Canadian government defends innovation policy record after fintechs’ criticism – a news story (12 December 2022) on trade association Fintechs Canada (formerly operating as Paytechs of Canada) marking the announcement of its new identity by criticising ‘slow progress on innovation policy’
‘Canada legislative review to tackle challenges posed by digital money’ – a news story (13 April 2022) on Canada’s government announcing a financial sector legislative review focused on the digitalisation of money and maintaining financial stability and security (the plan was contained in the country’s federal Budget 2022)
‘Bank of Canada and MIT ink digital currency link-up’ – our news story (18 March 2022) on the start of the central bank’s MIT collaboration
GLOBAL GOVERNMENT FINTECH LAB 2023: REGISTER NOW
The Global Government Fintech Lab 2023 – taking place in Dublin on Thursday 18 May – includes a panel session on CBDC. The Lab, our one-day event for senior public servants interested in exploring and implementing fintech solutions, is being organised in partnership with Ireland’s Department of Finance. The event is free to attend for all public servants.
