A Canadian CBDC will be beneficial for citizens and might bring several innovations for financial institutions.
The central bank of Canada published a paper titled “The Positive Case for a CBDC” on Tuesday. A national digital currency could be an effective competition policy tool for payments, eliminating transaction fees from credit and debit cards.
“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 Positive Case for a CBDC”
According to the Canadian central bank, a CBDC could be necessary for a competitive digital economy. It could also support the more efficient functioning of markets that use technologies like the internet of things (IoT) and programmable money.
“The role that cash has in limiting market power in payments. Therefore, as the economy becomes more digital, a CBDC—as a digital version of cash—can serve the public policy objective of maintaining competition in payments in digital markets.”
“The Positive Case for a CBDC”
The paper also analyzed smart contracts and their risks like cyber attacks, network bugs, scalability issues, and the problems of bringing off-chain data into the blockchain can bring.
It is advised in the document that smart contracts would need to be studied further.
“The ability to implement the complex logic of smart contracts is quite limited with today’s payment arrangements and infrastructure. Traditional payment systems do not have the technical capability to integrate smart contracts into payment processes.”
“The Positive Case for a CBDC”
Nations all over the world have been exploring the subject. The Bank of England has taken a similar step in April, creating a Taskforce to explore the issuing of a digital pound. Asia is one step ahead when it comes to CBDCs. Banks in Cambodia, China, or Thailand are already testing them.
The Bank of Japan is part of seven major central banks that are exploring the ecosystem of CBDCs through several trials. The digital yen will be compatible with them partly to counter the rapid progress of China towards issuing a digital yuan.
