The Bank of Canada’s Research on CBDC and the Role of Cash
The Bank of Canada conducted research to understand how citizens would behave in a hypothetical cashless environment towards central bank digital currencies (CBDC). The research paper analyzed the potential role of CBDC in a cashless scenario and revealed that most Canadian citizens have little incentive to use CBDCs because they already have easy access to financial services. The study found that 98% of the population has a bank account, 87% hold a credit card, and 90% of rural and urban citizens have access to high-quality internet.
However, the research paper emphasized the importance of cash in Canadian society. Cash is seen as a necessary offline payment method for emergencies, such as extreme weather or power outages. The paper also highlighted the role of the Bank of Canada as the issuer of cash, which is a traditional and widely accepted payment method.
The paper briefly mentioned some of the characteristics CBDC would have, including universal accessibility, non-interest bearing, limited incremental costs for consumers, and a high level of privacy. However, it clarified that CBDCs would not provide complete anonymity.
Cryptocurrency Regulations in Canada
In 2014, Canada implemented laws regarding cryptocurrencies, making it one of the first countries to do so. The Proceeds of Crime and Terrorist Financing Act (PCA) was launched to regulate individuals and entities involved with cryptocurrencies. Under Canadian law, cryptocurrencies are not considered legal tender. Only banknotes and coins issued by the Bank of Canada are recognized as legal tender according to Section 8 of the Currency Act.
In February 2023, Canada introduced new rules requiring crypto firms to commit to protecting investors through an enhanced pre-registration undertaking. Companies had to provide this undertaking within 30 days or cease operating in the country. As a result, major crypto companies such as Binance and Bybit stopped their operations in Canada.
Conclusion
The Bank of Canada’s research highlighted that CBDCs may not be attractive to Canadian citizens due to their high financial inclusion and easy access to existing financial services. Cash was emphasized as a vital component of the Canadian society, especially during emergencies. The research paper also provided insight into cryptocurrency regulations in Canada, stating that cryptocurrencies are not legal tender and outlining the new rules implemented for crypto firms. These developments have led to some major crypto companies ceasing operations in the country.
Hot Take: The research indicates that CBDC adoption may face challenges in a country where there is already high financial inclusion and access to traditional financial services. The importance of cash as a payment method in emergency situations suggests that widespread adoption of CBDCs in Canada may not be imminent.
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