Bank of Canada Developing Digital Currency Technology
At the Bank of Canada, a small team is hard at work on digital-currency technology. This initiative, spearheaded by Dinesh Shah, the bank’s director of fintech research, represents a significant effort to explore the future of money in a world increasingly shaped by digital assets. The team, comprised of approximately 15 professionals with expertise in cryptography, security, user experience, and solution architecture, is tasked with considering how a digital loonie could fit into a fundamentally different monetary landscape. Their work extends beyond immediate practical application, envisioning a currency that can adapt to technological advancements, potentially including fields like quantum computing and homomorphic encryption, with a planning horizon of at least 10 years to account for the significant possibilities of future technological shifts.
The team’s endeavors encompass a range of considerations, from determining the currency’s integration with other digital currencies, to establishing optimal interoperability with cash – a key element that would allow individuals to seamlessly transition between digital and physical forms of payment. A core component of their investigation involves understanding how to ensure privacy while adhering to compliance laws, a nuance that dictates the government’s ability to maintain oversight without guaranteeing anonymity. As Shah emphasized, “We never say anonymity because we don’t really think that’s on the cards, given the laws we have to abide by.”
The Bank of Canada’s exploration of digital currency has accelerated markedly in recent years, moving from a purely theoretical research phase to a test phase initiated in October 2021. This shift indicates a deeper level of commitment and a recognition of the evolving technological landscape. The team intends to start building test models for some of their designs as early as next year, suggesting a pragmatic approach focused on tangible outcomes. The research itself stretches back nearly a decade, encompassing a vast collection of data, including Bitcoin owners’ cash holdings and the impact of a CBDC on bank liquidity ratios.
The team’s work has garnered significant attention and sparked conversations with key stakeholders. Discussions have involved financial institutions, payment service providers, merchants, consumers, civil society groups, federal government departments and other federal agencies. The Bank of Canada has engaged with Equitable Bank chief executive Andrew Moor and Wealthsimple Technologies Inc. chief executive Michael Katchen, both of whom have expressed interest in exploring the potential benefits of a CBDC. Katchen highlighted the importance of an open-platform approach, advocating for a network that allows for participation from various entities and avoids stifling competition.
The Bank of Canada’s approach includes a thorough consideration of the potential economic and societal implications of a CBDC. They have been actively seeking feedback and insights from external experts to inform their policy and design thinking. The project faces political scrutiny, particularly given concerns about government surveillance and potential competition with the private sector, issues raised by Conservative Party leader Pierre Poilievre.
Despite these considerations, the team’s initial design choices appear largely settled. They’ve determined that a CBDC is unlikely to be built on a public blockchain network, such as Ethereum or Bitcoin, reflecting a desire to maintain control and avoid the complexities associated with decentralized systems. However, they remain focused on the currency’s integration with other digital currencies, contingent on how the ecosystem develops. The Bank of Canada’s work offers a valuable perspective on the future of money, and it underscores the critical role central banks play as they navigate this rapidly changing landscape.
