(Ottawa) Internal government documents show finance ministry officials believe there could be significant implications for the economy if the Bank of Canada issues its own cryptocurrency.
The Bank of Canada has spent years considering whether to introduce a digital currency, but so far has not seen the need to do so.
In a briefing note last January, officials warned Finance Minister Chrystia Freeland that the central bank’s issuance of a digital currency would have “far-reaching implications for the economy, the financial system” and Bank of Canada operations.
The documents also show that the central bank held a series of meetings with federal officials during 2020 to assess the implications of a “digital loonie” on ministries and agencies.
Large swathes of documents obtained by The Canadian Press under the Freedom of Information Act have been redacted because the department claims they contain sensitive government information.
But what remains suggests some federal concerns about a digital currency the central bank and departments wish to provide more commentary before a decision is made.
The Bank of Canada has stepped up the pace of its work on a digital currency, mirroring the efforts of its counterparts in other countries as the COVID-19 pandemic accelerates the transition to a digital economy.
The bank only plans to issue a digital currency if the use of banknotes for transactions drops and one or more private cryptocurrencies, such as Bitcoin, become widely used in Canada.
The government and the central bank have paid more attention to stable cryptocurrencies that are less volatile in value and are tied to cash and government securities.
The use in Canada of private cryptocurrencies linked to the U.S. dollar would strain the ability of the Bank of Canada to manage monetary policy for the benefit of the country, said Jeremy Kronick, associate director of research at the CD Howe Institute.
He said the bank should encourage private cryptocurrencies to use the Canadian dollar.
“The government could undo this thing in a second. The government could just say, ‘forget it, you can’t transact in Canada,’ said Jeremy Kronick, who recently co-wrote an article on the merits of a Bank of Canada digital currency system. .
“I don’t think they want it because there are benefits to private cryptocurrency that people love, but we also want to maintain the public good function. To do this, I believe central bank digital currency is the way to go. ”
Central bank research suggests that the likelihood of people using Bitcoin is related to its prevalence – the more people who adopt it, the more likely others are to follow suit – as well as the optimism of users as to the future of Bitcoin.
The document released in November noted 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 purchase digital currency than to open a formal bank account.
The Bank of Canada does not have the legislative authority of Parliament to deliver a digital currency, it can only design it.
The finance ministry has reviewed legislation related to a central bank digital currency, although a March email noted that no other country had “deliberately changed the law” to allow one.
The email said that even in Sweden, “widely considered to be at the forefront of the move towards a central bank digital currency among advanced economies,” the government is awaiting a report at the end of next year on the issue. whether the central bank should have the power to issue such a currency.
How quickly Canadian officials act will likely depend on how quickly the major stable cryptocurrencies are deployed, Jeremy Kronick said. He particularly highlighted the stable cryptocurrency that Facebook predicted, as it would be easy to adopt by users of the social media giant.
“I wish they could get ahead, but governments are notoriously slow until they have to,” Jeremy Kronick said.