A Proposal for a Canadian CBDC
39 Pages Posted: 18 Feb 2021
Date Written: February 16, 2021
Undoubtedly inspired by recent advances in technology-driven payment systems such as mobile payment systems, cryptocurrencies, and blockchain technologies, recent years have seen central banks worldwide explore the possibility of issuing digital forms of fiat money called central bank digital currencies or CBDCs. A thoughtfully designed CBDC can help satisfy numerous policy objectives, improve economic efficiency and inclusivity, and serve as a platform for economic innovation. However, the vast CBDC design landscape, coupled with its potential to massively disrupt the financial system and broader economy, warrants caution, calling for a careful and methodical analysis of various designs' strengths, weaknesses, and risk profiles. At this time, the Bank of Canada (BoC) has not committed to issuing a CBDC; nevertheless, it does rank among the more than 80% of central banks globally who, according to a recent survey by the Bank for International Settlements (BIS), are at least contingency planning for the eventuality of doing so. This report details and analyzes the authors' vision for a hypothetical BoC-issued retail CBDC for use in the Canadian context, taking into account both, the `business case' for its adoption from the perspective of BoC, policymakers, the financial services industry, and the Canadian economy more generally and how its widespread adoption would impact ordinary Canadians.
The design considered in this report leverages a mix of distributed ledger technologies (DLTs} and electronic cash (`e-cash') schemes with advanced cryptographic primitives. The confluence of these building blocks results in a scalable, resilient, privacy-centric, and universally accessible design that strives to bring added value (a Pareto improvement) for all stakeholders in Canada. In light of the abundance of CBDC designs in circulation, this report emphasizes aspects and implications of the design specifically tailored for Canada, such as ensuring universal access for remote communities and strong privacy protections consistent with Canada's role as a world leader in civil liberties and human rights. Likewise, some core aspects of the proposed architecture reflect characteristics of Canadian law and the Canadian financial system, which may differ substantially from other countries.
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