Internal government documents show that Treasury officials believe that if the Bank of Canada ever issues its own, it could have far-reaching consequences for the economy cryptocurrency.
The Bank of Canada has spent years looking at whether to introduce a digital currency, but has so far not seen an immediate need to issue one.
In a briefing from January last year, Treasury officials Chrystia Freeland warned that the issuance of a digital central bank currency would have “far-reaching consequences for the economy, the financial system” and the Bank of Canada’s operations.
The documents also show that the central bank held a series of meetings with federal officials during 2020 to measure the consequences of a “digital shit” on departments and agencies.
Much of the documents obtained by The Canadian Press under the Access to Information Act have been obscured because the department says they contain sensitive government information.
But what is left suggests some federal concerns about a central bank’s digital currency, where departments want to provide more input before a decision is made.
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The Bank of Canada has accelerated the pace of its work on a digital currency, reflecting the efforts of counterparties 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 physical bills for transactions plummets and one or more private cryptocurrencies, such as Bitcoin, become widespread in Canada.
The government and the central bank have been paying more attention to planned stack coins, the value of which is less volatile, as the name suggests, and which are backed by cash and government securities.
The use in Canada of private cryptocurrencies pegged to the U.S. dollar would strain the Bank of Canada’s ability to control monetary policy for the benefit of the country, said Jeremy Kronick, associate research director at the CD Howe Institute.
He said the bank should encourage private cryptocurrencies to use the Canadian dollar as support.
“The government could cancel this thing in a second. The government could just say, ‘Forget it, you can not trade in Canada,'” said Kronick, who co-authored a paper on the benefits of a Bank of Canada digital currency.
“I do not think they will, because there are benefits to the private cryptocurrencies that people like, but we also want to preserve the public goods function. To do that, I think (the central bank’s digital currency) is the way to go. “
Research from the central bank suggests that the likelihood of people using Bitcoin is linked to its prevalence – the more people who adopt it, the more likely others will follow suit – as well as how optimistic users feel about the future of Bitcoin.
The newspaper published in November noted that Bitcoin adoption in Canada remains low at around five percent. 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 a formal bank account.
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The Bank of Canada does not have the legislative authority of Parliament to offer a digital currency, only to design, issue and distribute bills crammed inside wallets and handed over a counter.
The Treasury Department has looked at legislation linked to a central bank’s digital currency in the CBDC, though an email from March noted that no other country had “deliberately changed legislation” to allow one.
The e-mail noted that even in Sweden, “which is widely considered to be at the forefront of the move against CBDC among advanced economies”, the government expects a report late next year on whether the central bank should have the power to issue a digital currency .
How fast Canadian officials move is likely to depend on how fast large stack coins roll out, Kronick said. He particularly pointed to Facebook’s planned stablecoin because it would be easily adopted by social media giant users.
“I want them to get ahead of it, but governments are notoriously slower until they have to,” Kronick said.
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