Federal Officials Concerned About Bank Of Canada Adopting Cryptocurrency

Internal government documents show that federal officials are concerned about the economic impact that would result if the Bank of Canada develops its own cryptocurrency.

The Bank of Canada has spent years studying the feasibility of developing a digital currency or virtual dollar, but so far hasn't seen a need to issue one.

However, internal government documents obtained by the Canadian Press show that federal officials are concerned that the issuance of a digital currency would cause “wide-reaching implications for the economy, the financial system” and the Bank of Canada's operations.

The documents also show the central bank held a series of meetings with federal officials over the course of 2020 to gauge the implications of a “digital Loonie” on departments and agencies.

The Bank of Canada increased its work on a digital currency throughout 2021, mirroring efforts by counterparts in other countries as the COVID-19 pandemic accelerates the transition to a digital economy.

Canada’s central 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 (BTC), become widely used across Canada.

The Bank of Canada is paying more attention to planned stablecoins whose value is less volatile, as the name implies, and are backed by cash and government securities.

Research by the central bank suggests the probability of people using Bitcoin is tied to its prevalence -- the more people who adopt it, the more likely others will follow suit -- as well as how optimistic users feel about Bitcoin's future.

A Bank of Canada paper published in November noted that Bitcoin adoption in Canada remains low at around 5%. The paper’s authors suggest young Canadians are more likely to use Bitcoin because it is easier for them to purchase the digital currency than to open a bank account.

The Bank of Canada doesn't have the legislative authority from Parliament to offer a digital currency to Canadians, only to design and develop one.