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Federal documents warn of sweeping implications if ‘digital loonie’ adopted

Global News | Jordan Press | Jan 3, 2022

Canadian dollar digital currency - Federal documents warn of sweeping implications if ‘digital loonie’ adoptedInternal government documents show Finance Department officials believe there could be sweeping implications for the economy if the Bank of Canada ever issued its own cryptocurrency.

The Bank of Canada has spent years looking at whether to introduce a digital currency, but so far hasn’t seen an immediate need to issue one.

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In one briefing note from last January, officials warned Finance Minister Chrystia Freeland that the issuance of a central bank digital currency would entail “wide-reaching implications for the economy, the financial system” and the Bank of Canada’s operations.

Large swaths of the documents obtained by The Canadian Press under the access-to-information law have been blacked out because the department says they contain sensitive government information.

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But what remains suggests some federal concerns about a central bank digital currency, with departments wanting to provide more input before a decision is made.

The bank only plans to issue a digital currency if the use of physical bills for transactions plummets and one or more private cryptocurrencies, such as Bitcoin, become widely used in Canada.

The government and central bank have paid more attention to planned stablecoins whose value is less volatile, as the name implies, and are backed by cash and government securities.

The use in Canada of private cryptocurrencies tied to the American dollar would strain the Bank of Canada’s ability to manage monetary policy for the benefit of the country, said Jeremy Kronick, associate director of research at the C.D. Howe Institute.

See: 

Bank of Canada Staff Paper: Bitcoin Adoption and Beliefs in Canada

ECB Report on CBDCs: Functional scope, pricing and controls

He said the bank needs to incentivize private cryptocurrencies to use the Canadian dollar as a backing.

“The government could quash this thing in a second. The government could just say, ‘forget it, you can’t transact in Canada,”’ said Kronick, who recently co-authored a paper about the merits of a Bank of Canada digital currency.  I don’t think they want to because there are benefits to the private cryptos that people like, but we want to also maintain that public good function. To do that, I think the (central bank digital currency) is the way to go."

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