What would a central bank digital currency mean for Canada? We ask 5 experts

Yet the Bank of Canada (BoC) is actively researching the idea of a central bank digital currency (CBDC) in Canada. Though it does not see an immediate need for a Canadian CBDC, the BoC is preparing for the possibility that cash may one day fall out of use entirely. It’s not alone—central banks in many other countries are also pondering a digital currency.

The launch of a Canadian CBDC (an unfortunate acronym that doesn’t do a digital loonie justice) would have wide-ranging implications for the Canadian banking system and Canadians’ access to legal tender. For insight on what to expect from a digital loonie, we asked five money experts with different financial specialties to share their perspectives. You can read their responses below.

But first, let’s look at what CBDCs are, how they work, and when the Bank of Canada expects to introduce one. 

What is a CBDC—a.k.a. GovCoin?

A CBDC is a digital form of fiat money (currency declared legal tender by government decree). Informally called a GovCoin, a CBDC or digital dollar is backed and regulated by a country’s central bank and serves as legal tender. A CBDC operates within a centralized system, meaning digital transactions would be secure and reliable. A Canadian CBDC would function exactly like cash, except you would also be able to use it for online purchases and send it electronically to other people and companies, including financial institutions and anywhere you pay your bills.

Is a digital currency coming to Canada?

Not yet. The BoC says it “doesn’t see a need for a digital dollar right now.” However, it’s studying the issue with the expectation that “Canada may need one in the future.” Although the BoC would issue and regulate the digital version of our national currency (as it does Canadian coins and bills), the federal government would ultimately determine if or when to issue a digital dollar. 

When will Canada’s CBDC launch? 

There are currently no plans to introduce a CBDC in Canada. Rather, the BoC is researching the need for one in the future. As such, it held a public consultation from May 8 to June 19, 2023, to gather feedback from Canadians. The online survey asked respondents about the features of a CBDC that would matter most to them. Over 85,000 Canadians participated. Their feedback is now being shared with researchers and policymakers, and it will be included in a report coming later this year. 

Are CBDCs the same as cryptocurrencies?

No. There are fundamental differences between CBDCs and cryptocurrencies. Here are some of the main ones. 

• Regulation: CBDCs are issued and regulated by central banks, whereas anyone can start cryptocurrencies, and they are not legal tender (in Canada, they are viewed as commodities). CBDCs are by necessity centralized, while crypto is by design decentralized, used to facilitate peer-to-peer transactions without intermediaries.
• Acceptance: CBDCs have the same status as physical cash in the country in which they are issued, while the acceptance of cryptocurrency as a form of currency varies (and is not widespread in Canada).
• Volatility: The value of a digital Canadian dollar would not change. For example, $10 in digital Canadian dollars would have the same value as a $10 bank note. In contrast, the values of cryptocurrencies change all the time relative to the Canadian dollar. However, there are a set of crypto called stablecoins, which are tied to the U.S. dollar.
• Purpose: CBDCs are designed to make the financial system more efficient, secure and inclusive. In contrast, cryptocurrencies have a wide range of applications, including enabling peer-to-peer transactions and serving as a form of speculative investment. They operate outside of the centralized banking system, and trading crypto carries a wide range of risks. 

How many countries have a CBDC?

As of June 2023, more than 100 countries were actively exploring or engaging in the use of CBDCs, according to a report by finance publication Finbold. Among those countries, 11 had already launched a CBDC, and 21 were piloting one. The number of countries in “advanced exploration phases” grew from 50 in May 2022 to 64 in June 2023. 

5 experts on what a CBDC could mean for Canada

We asked five experts to share their perspectives on a Canadian digital dollar. We’ve included their responses below—they touch on everything from the need for a CBDC in Canada to the benefits for unbanked Canadians and the potential security risks. 

The evolution or end of money in Canada? 

Over the millennia, many different things have been used as money, providing people with ways of making transactions, saving for the future, and keeping track of finances. During Canada’s early days, beaver skins, shell and glass beads, and even playing cards were popular forms of currency. Awkward to use or easy to counterfeit, they were replaced by metal coins. Subsequently, bank notes with fanciful designs and colours to deter counterfeiting gained favour. They were cheap to produce and could be easily tucked into pockets and purses.

Most recently, privately issued cybercurrencies have gained a degree of acceptance as users can make anonymous payments at the click of a computer mouse. Now, central banks, including the Bank of Canada, are actively investigating the merits of issuing their own digital currencies.

It is an idea worthy of consideration. Unlike paper bank notes, a digital currency would be more difficult to steal and impossible to counterfeit. It would also provide central banks with another policy instrument. Assuming paper money was discontinued, a digital currency might also hinder the underground economy. No longer could cash payments be made under the table.

But does anybody want a cyber–Canadian dollar? Most Canadians, especially younger Canadians, don’t use cash, relying instead on debit or credit cards, or even their phones to pay for goods and services. Would this change if the Bank of Canada introduced a cyber–Canadian dollar? As well, would we want to have a financial system that consists solely of bits and bytes? If the power grid were to fail, so does your ability to make transactions—a lesson many learnt the hard way during weather events and other disasters.

The fact of the matter is that Canadians have already gone digital; cash hasn’t been king for a very long time. A digital currency may be more of a financial cul-de-sac rather than the end of money.

James Powell is a retired senior central banker and the author or co-author of several books dealing with Canadian monetary and financial history, including A History of the Canadian Dollar. He writes a blog called Today in Ottawa’s History.

A new era of convenience and efficiency

The digitalization of money is rapidly transforming the global financial landscape, and Canada is actively exploring the potential of a CBDC. A CBDC could impact Canada’s payment landscape, potentially ushering in a new era of convenience, efficiency and financial inclusion. However, there are risks and complexities to consider.

While the Government of Canada will ultimately make the decision as to whether or not to introduce a CBDC into the Canadian economy, the Bank of Canada is leading the exploration of issuing a CBDC for future use that Canadians can trust. Payments Canada is supporting the Bank of Canada and could have a role given our unique position as operator of Canada’s national payment infrastructure. It would leverage and allow Payments Canada’s payment systems to support a CBDC. How a CBDC would impact existing payment methods must be considered, and how the future real-time payments system could be leveraged.

As Canada progresses its work related to a CBDC, the following key policy considerations remain top of mind:

1. Financial and monetary stability: Collaborative efforts between regulatory bodies will be essential to mitigate any potential risks to the Canadian economy and financial system.
2. Privacy: A CBDC should balance safeguarding individual privacy rights and deterring criminal activities.
3. Distribution model: Accessibility and inclusivity are paramount to a successful digital economy. There will be the potential for a much broader customer reach, should the Canadian Payments Act be amended to expand Payments Canada membership.
4. Resilience: Existing and future payment systems must be capable of supporting a CBDC 24/7/365.
5. Liability: A sound liability framework that protects consumers from fraudsters in deploying and operating a CBDC is vital.
6. Consumer recourse: In the unlikely event that something goes wrong, there must be measures and processes in place to ensure end-users can seek redress.

Many countries are exploring or implementing their own digital currencies. The Bahamas recently launched its CBDC, called the Sand Dollar. China, India and Thailand are in the pilot phase of their journeys. Canada, for its part, is actively positioning itself to make informed decisions and ensure a CBDC would align with its unique financial landscape and public policy objectives—the continued promotion of safety, soundness and efficiency of its payment systems.

Charl Ackerman is director of policy at Payments Canada, a public purpose, non-profit organization that ensures financial transactions in Canada are carried out safely and securely. 

A CBDC would pose a security threat to Canadians

Compared to the cryptocurrencies many Canadians currently use, a CBDC would offer less access, anonymity and ownership. Fundamentally, a digital dollar would be convenient, but the trade-off would be personal freedom and privacy.  

Canadians should not assume their information would remain anonymous with a digital dollar. A CBDC would allow the government to monitor financial activity and potentially share users’ personal and financial information with other government agencies and even commercial entities. CBDCs collect and use vast pools of personally identifiable information that would be an irresistible target for cybercriminals. Senior citizens and those less experienced with technology would be especially vulnerable.

The CBDC’s traceability could drive cybercrime deeper into the digital world and further complicate the work of law enforcement. As with any major societal disruption—which the introduction of a new digital currency would be—spear phishing, ransomware and social engineering attacks would ensue. The CBDC could also become a potential target for state-sponsored cybercriminals who want to paralyze Canada’s financial infrastructure.

Lastly, a digital dollar would only be available in electronic form, and therefore not considered physical property like cash or gold. This raises the question: Who owns it? If it is by the Bank of Canada and not by the user, the power to restrict or curtail transactions could be taken out of Canadians’ hands. This change in property rights could lead to societal chaos, unrest and confusion—an environment in which cybercriminals thrive.

The creation of a CBDC would not change my advice to Canadians when it comes to making decisions online. It would remain just as important—if not more so—to think rationally rather than emotionally and to question every opportunity that sounds too good to be true.

Kathy Macdonald, M.O.M., MSc., is a retired police officer with over three decades of investigative and crime prevention experience. She is the author of Cybercrime: Awareness, Prevention, and Response and a member of the Order of Merit of the Police Forces. She was named one of the Top 20 Women in Cyber Security in Canada.

An opportunity to expand financial inclusion?

With more and more businesses going cashless, and the risk that alternative digital currencies may undermine our monetary sovereignty, the Bank of Canada is preparing for the possible introduction of a CBDC.

In the face of these risks, a safe, stable and universally accessible CBDC would be a welcome complement to cash. Even without these pressures, however, it could offer immediate benefits to Canadians in rural, remote, Indigenous and low-income communities who are currently unable to access digital payments because they are digitally and/or financially excluded.

According to a 2022 Deloitte report, where you live in Canada determines your access to minimum broadband speeds. These speeds are only available to 46% of rural households, 35% of First Nations communities and 53% of households with incomes under $40,000. While most Canadians also have bank accounts, some low-income people do not use them due to unpredictable fees and/or fear of funds being seized by creditors. Members of some Indigenous communities are also less likely to be banked due to poor access to mainstream financial institutions and other barriers. A CBDC could enable access to digital payments for all of these groups.

The Bank of Canada has committed to universal accessibility as a key governing principle for any future CBDC. It is actively exploring options for a digital currency and Universal Access Device that are fully functional without internet access. The BoC has also committed to a design methodology aimed at understanding user groups through extensive consultation, analyzing their specific needs, considering multiple design options, and developing prototypes for early feedback and improvements. This “inclusive by design” approach, commitment to universal access, and leveraging of innovative new technologies offers real hope that any future CBDC will mean greater financial inclusion, lower financial costs, and more economic opportunity for Canadians who are currently excluded from our digital payments system.

Elizabeth Mulholland is CEO of Prosper Canada, a national charity dedicated to expanding economic opportunity for Canadians living in poverty.

There’s no need for a digital dollar right now

Canadians are increasingly moving away from physical currency towards digital transactions and payments. As a share of total transaction volume, the use of cash as a payment method fell from 27% in 2016 to 10% in 2021. Over the same timeframe, online transfers grew from 1% to 5% of total transaction volume. 

In addition to addressing this behavioural shift, there is hope the creation of a digital dollar could ensure all Canadians participate fully in the economy. For example, a CBDC could act as a digital wallet for individuals without the means to open an account or credit card with a bank, and allow them to complete online transactions. 

Still, it doesn’t seem that a digital dollar is necessary right now. Many of the possible functions a CBDC could be used for already exist through other means such as using credit cards for online purchases or e-transfers for sending money to others. Therefore, a CBDC would more so optimize these rather than introduce novel features. And the BoC has no plans to immediately launch one. Rather, it will build the capacity to issue a general-purpose, cash-like CBDC should the need for one arise in the future. 

At what point would it become necessary? In the BoC’s view, a CBDC would be needed if bank notes fall so out of use that Canadians can no longer use them day-to-day, or if digital currencies issued by the private sector become commonly used as an alternative payment method in Canada. Neither one of these scenarios seems likely in the near future.  

Sohaib Shahid is the director of economic innovation at The Conference Board of Canada.

Read more about banking and cryptocurrency:

• How fintech—and neobanks in particular—are transforming banking in Canada
• How to navigate growing crypto regulation in Canada
• Are your deposits at Canadian financial institutions safe?
• What is decentralized finance?

About MoneySense Editors

MoneySense editors and journalists work closely with leading personal finance experts in Canada. Since 1999, our award-winning magazine has helped Canadians navigate money matters.

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About Justin Dallaire

Justin Dallaire is the senior editor at MoneySense.ca. He was previously an editor at Strategy magazine and has a master’s degree in journalism from Toronto Metropolitan University.

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