thecoinrepublic.com
Canadian CBDC will spawn several innovations
- Number of potential benefits which the adoption of a CBDC can accrue
- it is a low-cost payment instrument for customers and merchants
- It will also bring down the interchange fees charged by the established networks
The Bank of Canada (BoC) suggested that there should be a CBDC which will provide several innovations and also negate the transaction fees from debit and credit cards. In a recent study conducted by Canada’s central bank, Banque du Canada. The study revealed the country could benefit in several ways with its own Central Bank Digital Currency, or CBDC.
The document released after the study reveals two scenarios: One in which citizens are no longer using cash within the country for reasons that the bank did not specify. The second scenario is if a digital currency, public or private, becomes so popular and widespread in use that it threatens the sovereignty of Canada’s existing primary currency.
Both the scenarios are imaginary and will not happen shortly. There has been a spike in interest in stablecoin regulation and adoption in the country. However, the study noted that cryptocurrency and stablecoins are used as a means of payment by a small number of enthusiasts.
Benefits accrued by the adoption of a CBDC
The document also agrees that there are several potential benefits which the adoption of a CBDC can accrue. For example, the technology is safe, just like cash dealings and offers the same level of safety for use in payment systems for online transactions and peer-to-peer transfers. It will also not incur the same type of transaction fees for retailers as using payment options like credit or debit cards.
Terming the CBDC as a more straightforward competition policy tool, the document adds that it is a low-cost payment instrument for customers and merchants. It will also bring down the interchange fees charged by the established networks.
Use of CBDC in smart contracts
The possibility of the use of CBDC in smart contracts was also touched on in the document. The speed and the accuracy of execution can be enhanced by automating actions that are typically done manually.
The risk associated with smart contracts
However, the risk associated with smart contracts was also discussed, considering that smart contract developers would likely be independent of the bank’s CBDC platform. It can create problems, especially if the agreed terms and conditions are not adhered whether purposely or otherwise. The need for more studies for the programmability of a Canadian CBDC before implementation was emphasized.
Finally, CBDC could be beneficial and need the present times to ensure a competitive and vibrant digital economy.
Canada is not the only country that is delving into the possibility of a CBDC. For example, while interacting in the House of Representatives, chairman of the Federal Reserve Jerome Powell said there would be no need for stablecoins or cryptocurrency if there were a digital U.S. dollar. In addition, a paper detailing the benefits and risks of a digital dollar is expected to be released sometime in September.
Many nations are running pilot projects to check the feasibility of their own CBDC. For example, China has already kick-started its Digital Yuan project, and the Bank of Japan is also conducting pilot projects to study the feasibility of a Digital Yen.