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A Canadian CBDC, according to the Bank of Canada, could bring a slew of changes, including the elimination of transaction fees on debit and credit cards.
A study released by Canada’s central bank, Banque du Canada, has noted a number of favorable reasons that the country could benefit from its own Central Bank Digital Currency, or CBDC.
The document laid out two scenarios that might result in the bank issuing a CBDC at some future date.One example would be if citizens were no longer widely using cash within the country for undefined reasons. The other possibility is that a digital currency, whether public or private, becomes so popular that it threatens the sovereignty of Canada’s current central currency.
Participants did not believe either scenario would happen in the near future, but did observe that interest in stablecoin regulation and adoption has grown in recent months in the country. Despite this, the survey showed that the use of cryptocurrencies and stablecoins as a form of payment in Canada is still a “novelty for a tiny number of enthusiasts.”
A number of potential benefits associated with the adoption of a CBDC were mentioned in the document. Specifically, the technology might offer the same level of security as currency while also being able to be used in online payment systems and peer-to-peer transfers. When compared to other payment methods such as credit or debit cards, a CBDC would not necessarily have the same types of transaction costs for merchants:
“A CBDC could be a simpler competition policy tool because it would provide an alternative low-cost payment instrument for customers and merchants. This would help bring down the interchange fees charged by the established networks.”
The fact that a CBDC may possibly allow smart contracts piqued my curiosity, as they have the potential to improve execution speed and accuracy by automating operations that are traditionally performed manually. Participants believed that smart contracts would pose a risk to consumers since smart contract developers would be independent of the bank’s CBDC platform. This could be a problem if the contract was not carried out according to the terms agreed upon, whether on purpose or not. They recommended that smart contracts, as well as the programmability of a Canadian CBDC, be thoroughly investigated before implementation.
There could be many benefits to creating a CBDC for Canada. The study explained:
“In general, we argue that a CBDC might be beneficial and probably necessary to ensure a competitive and vibrant digital economy.”
The United States isn’t the only country considering introducing a CBDC. Chairman of the Federal Reserve Jerome Powell remarked last week in a speech to the House of Representatives that if there was a digital US dollar, there would be no need for stablecoins or cryptocurrency. In September, a report concentrating on the merits and hazards of a digital dollar is likely to be released.