You’ve read in these pages of the possible Cryptoruble, Russia’s attempt to stave off bitcoin. The European Central Bank and Swift is also trying to speed up its legacy payments processing in order to slow the popular digital asset’s ascent. But is the world ready for a Bank of Canada, state-backed cryptocurrency? Maple Leaf Coin? Le Coin Poutine? Coin Eh? Hoser Coin? The northern most American government appears headed in that direction.
Also read: Egypt Finance Attorney General Calls for International Governance of Bitcoin
Canada Central Bank Explores Own Crypto
Central Bank Digital Currency: Motivations and Implications (CBDC), is the title of a thirty page exploration by the Bank of Canada. Authored by Walter Engert and Ben S.C. Fung, the paper begins with the premise bitcoin and its surrounding technology “have raised the possibility of considerable impacts on the financial system and perhaps the wider economy.”
And while Canada is not particularly thought a hotbed of crypto activity, it does boast floppy-haired executive leadership seemingly ready to instruct a college course on quantum computing at a moment’s notice. If that wasn’t enough, the current Prime Minister’s half brother is a well-known bitcoin advocate.
If any country could pull off a state-backed cryptocurrency, it’s probably Canada.
“This paper addresses the question of whether a central bank should issue digital currency that could be used by the general public,” the CBDC paper begins. It’s goal is to arrive at “a benchmark central bank digital currency with features that are similar to cash.”
Pros and Cons
By nature, cryptocurrency enthusiasts are skeptical of government intervention, and especially when it comes to the question of technology undergirding the monetary innovation being used as government tender. Rarely does anyone expect a state currency in this regard to complete openly with the likes of bitcoin, but it probably is, in the end, a way to supplant the decentralize currency altogether.
Indeed, a state-backed cryptocurrency is probably the worst of all worlds. As any bitcoiner worth their salt will explain, bitcoin is not anonymous. In fact, with a few easily obtained parameters, distributed ledgers could be used as the most efficient way ever to track human trade and commercial habits.
To be fair, the CBDC paper poses this question, albeit in a roundabout way. They consider “whether a central bank liability that is accessible to the general public, like cash or [cryptocurrency], is desirable from a social-welfare perspective. Is it sufficient for a central bank to supply only reserves to qualified financial institutions? Put differently, is a
‘cashless society’ a sound outcome?”
A major concern beyond power-loss is seigniorage, the profit central banks make off of their currency monopoly. Bitcoin represents a serious challenge to it.
Perhaps as a way to preempt such a loss, it’s own cryptocurrency just might get a few more birds with that one stone: a viable alternative to bitcoin and the possibility of having “no transaction fees charged by the central bank, the benchmark [cryptocurrency] would probably be less expensive for merchants than cash and credit cards,” the CBDC guessed.
The report was quick to pivot, however, underscoring itself as only a suggestion and not officially policy. It also was keen to warn cryptocurrencies and distributed ledgers are so new that every precaution should be taken prior to rollout.
What do you think of state-backed cryptocurrencies? Tell us in the comments below!
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