(Ottawa) Internal government documents show that Treasury officials believe there could be significant repercussions for the economy if the Bank of Canada issues its 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 a central bank issuance of a digital currency would have “far-reaching implications for the economy and the financial system” and the operations of the Bank of Canada.
The documents also show that the Central Bank held a series of meetings with federal officials during the year 2020 to assess the repercussions of the “digital madman” on 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 a digital currency if the use of banknotes for transactions decreases and one or more private cryptocurrencies, such as Bitcoin, become widely used in 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.
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 Canada,” said Jeremy Kronick, who recently co-wrote an article on the advantages of the Bank of Canada’s digital currency system.
“I don’t think they want that because there are benefits to private cryptocurrency that people love, but we also want to preserve the function of the public good. To do that, I think 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 5%. 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.
The Ministry of Finance has reviewed legislation on central bank digital currency, although an email in March indicated that no other country had “deliberately changed the law” to allow it.
Even in Sweden, “which is widely considered to be at the forefront of the movement toward a central bank digital currency among advanced economies,” the government is awaiting a report at the end of next year on the issue, the email said. He must have the ability to issue such a currency.
Jeremy Kronik said that how quickly Canadian officials act will likely depend on how quickly major stablecoins are deployed. 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 notoriously slow until they have to,” Jeremy Kronick said.
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