A central bank digital currency, or CBDC, is an official digital currency that's issued and regulated by a central bank. It's like digital cash, designed to be secure and easy to use – but meant to complement physical cash rather than replace it.
The Bank of Canada is actively exploring ideas related to implementing a CBDC in Canada. They want to ensure financial inclusion for everyone while also protecting our economy. It's easy to see how a CBDC could accomplish both of these goals, but there are still many factors to consider – a digital currency like this would allow the government unprecedented access to our personal financial data, which is a bit frightening.
But it's important for our central bank to look into this possibility, especially since many other countries have already adopted a CBDC. It's also important for us to understand all the ins and outs of how this digital currency works and what it means for our personal finances.
Key Takeaways
- A central bank digital currency (CBDC) is a digital currency that's issued and backed by a central bank.
- Canada is still researching and developing a plan to implement a national CBDC.
- CBDC isn't meant to replace cash – both serve their individual purposes and can be used in tandem.
- Benefits of a Canadian CBDC include improved convenience and efficiency, as well as reduced costs and processing times.
- There are significant concerns about various security and privacy aspects of using CBDC in Canada.
How would CBDCs work in Canada?
The first thing to mention is that a CBDC isn't meant to replace cash – it's actually meant to complement cash. In fact, while it functions like a cryptocurrency and can be used to make just about any kind of purchase, a CBDC is actually more like cash since it's issued and backed by a bank.
Unlike decentralized digital currencies (think Bitcoin, Ethereum, Litecoin, etc.), a CBDC is a digital representation of a country's existing fiat currency and maintains a stable value. This means that if you had $100 in CBDC in your bank account, the Bank of Canada is liable for it, just as they are with cash.
Similar to cash, users can hold and transact in CBDC through digital wallets, which should result in faster and more efficient financial transactions. You can use a mobile app in-store or make online payments just as you would with funds in a typical bank account, but with much more ease and speed.
Canadians have been using "mobile money" for years now, and we've come to rely on the convenience of online money transfers, debit cards, etc. A 2017 study by the Bank of Canada titled "How Canadians pay for things" reports that only 1 in 3 financial transactions are made in cash. It also states that credit and debit cards are the most popular cash alternatives.
On top of making purchases, transferring money to people in the same country as you will be practically instantaneous, and paying someone outside the country should be nearly as fast. Plus there will be far fewer fees than those charged by international money transfer services now.
CBDCs around the world
Canada definitely isn't the only country considering a national CBDC. Governments in many places around the world have been considering a form of CBDC for years, and the COVID-19 pandemic really sped things up, thanks to the sudden need for forms of cashless and/or touchless payments.
The Central Bank Digital Currency Tracker from Atlantic Council (a U.S.-based think tank) provides information on how 131 other nations are exploring this idea of a central digital currency – here are some of its findings:
| CBDC phase | # of countries |
|---|---|
| Launched | 11 |
| Pilot program | 21 |
| Developing a program | 33 |
| Research | 46 |
| Inactive | 16 |
| Cancelled | 2 |
* Note that this information was last accessed and updated on November 22, 2023.
At the time of writing, Atlantic Council's data says that Canada is in the development phase.
It's hard to tell right now, but it may be that Canada needs a CBDC in order to stay current and competitive in global markets. Either way, the Bank of Canada feels that it has a responsibility to research and explore the possibility of developing and implementing this kind of digital currency.
Types of CBDC
There are 2 types of CBDS: wholesale and retail. Each type of CBDC is used differently – one enhances big bank transactions, making them better and faster, and the other focuses on the experience and usability of everyday consumers and businesses.
- Wholesale CBDCs are only used by financial institutions that hold reserve deposits with a central bank. They can be used for big, important transactions like moving money between banks and handling investments.
- Retail CBDCs are safe and accessible digital payment methods that allow the general public to make everyday purchases, payments, and transactions. They can be accessed through digital wallets, smartphone apps, and other payment systems that we already link and use with our cards and bank accounts.
CBDC vs. regular money
There are actually more similarities between CBDC and "real" money – fiat currency – than there are differences. The biggest difference is that a CBDC is issued by and a liability of a country's central bank, not a commercial bank (like Scotiabank, for example).
CBDC can be used just like cash, but can also be sent electronically to other people or businesses. It can be used to make purchases, to pay bills, to send to family and friends, etc. Businesses can also use it to pay each other.
CBDC vs. cryptocurrency
While CBDC is digital money, it's not the same as cryptocurrency. CBDC is legal tender, which means it's issued, regulated, and backed by a central bank. Crypto, on the other hand, is decentralized by design and not backed by any bank or institution at all.
The values of most cryptocurrencies are always changing (stablecoins are the exception), essentially worth whatever people are willing to pay at the time. They can also come with pricey transaction fees and long process times.
Processing times for CBDCs are nearly instantaneous, with no transaction fees. And a CBDC 's value doesn't change. $10 in CBDC has the same value as a $10 bill in your hand.
The risks and benefits of a CBDC for Canada
Implementing a CBDC would revolutionize our financial landscape, offering new efficiencies and innovations – but there are also many challenges to consider, especially with regard to privacy and security.
Here's a look at some of the most obvious pros and cons of such a digital currency coming to Canada:
CBDC pros and cons
| Pros | Cons |
|---|---|
|
|
Some believe that a CBDC doesn't really promote financial inclusion, but others argue the opposite. On the one hand, a digital currency like this would provide safe and easy access to money for those who are underbanked. But there are many Canadians in rural, remote, and low-income communities who don't have reliable access to the internet if they have access at all.
This is just one example of arguments for and against introducing a CBDC in Canada.
What do you think of Canada's plans for a CBDC?
While it doesn't seem like a CBDC is in our immediate future, it's certainly something that could change the financial landscape of our country in the coming years. And as the Bank of Canada continues to explore the idea of a Canadian CBDC, we should all educate and prepare ourselves for the possibility.
The BOC will continue to provide opportunities for public input on this concept, and we're also interested to hear your thoughts. What do you think of CBDCs? Do you think Canada should implement one? Why or why not?
Please share your ideas with us in the comments section below.
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$25 GeniusCash + Delicious meal choices with fresh ingredients + Front-door delivery.FAQ
What is CBDC?
CBDC stands for "central bank digital currency" and refers to a form of digital currency issued and regulated by a central bank. Essentially, these are digital dollars that are declared legal tender by the federal government.
When is Canada's CBDC launch date?
There is no launch date yet. The Bank of Canada is still in the development phase of the process and says that while there isn't a need for a Canadian CBDC right now, there could be in the future.
How can I make CBDC payments?
You can't make these payments in Canada right now as we don't have an official CBDC here. However, if and when it's introduced here, you'll be able to use a digital wallet, mobile app, or other similar payment methods.
Which countries have a CBDC?
There are 11 countries currently using a CBDC system. This includes the Bahamas, Jamaica, Anguilla, Nigeria, and 7 other countries in the eastern Caribbean. 21 other countries have launched pilot programs, including Australia, China, Japan, Sweden, and several others.
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