A significant number of large economies, representing 98% of global GDP, are exploring the potential of central bank digital currencies (CBDCs). This increase in interest has been particularly striking since 2020, when the number of countries in advanced stages of CBDC development more than doubled. It is believed that the first country to launch a functioning CBDC could fully replace the US dollar as the global trading currency.
But surprisingly, the Bank of Canada has announced that it is pausing its efforts to introduce a digital version of the Canadian dollar. This decision comes after extensive research on the benefits and challenges of a Canadian digital currency. Bryan Daugherty, a global policy expert, argues that Canada’s well-established financial ecosystem, including efficient digital payment systems, may have reduced the immediate need for a CBDC. The significant costs associated with implementing such a system, combined with uncertain public interest, may be factors in the decision to wait.
The future of digital currency in Canada
Despite this step back, the door does not remain completely closed for future CBDC developments in Canada. Alessandro Hatami, a financial change specialist, suggests that successful CBDC implementations in other major economies may cause Canada to reconsider its position. A well-implemented CBDC is supposed to offer benefits such as faster and more cost-effective domestic and international payments. The Bank of Canada’s move allows for a period of observation and assessment of others’ developments and an opportunity to closely monitor new technologies and solutions, which could lead to more informed decision-making in the future.
While Canada is taking a step back, other countries continue to move forward with their CBDC plans. The UK is exploring the possibility of introducing a digital pound, Hong Kong and Singapore are already conducting advanced trials, and China’s digital yuan is said to have started to grow.
Debate on the need for CBDCs
There are strong concerns about what CBDC would mean for individual privacy and even stronger concerns about the potential for state abuse of power, as well as scepticism about whether there is any real practical use for CBDC.
Public interest in new forms of currency remains a key issue in implementing CBDCs. Canada’s decision poses a potential risk that the country could fall behind in fintech innovation compared to countries actively pursuing CBDC, while the pause gives Canada the opportunity to refine its strategies. Experts suggest that countries that leverage scalable blockchain solutions to securely process large transaction volumes may have an advantage in a successful CBDC rollout.
While the Bank of Canada is taking a pause in its CBDC development, the global financial community is watching with interest. The success or failure of CBDCs in other countries could ultimately affect Canada’s future decision to introduce a digital dollar. For now, the country’s approach reflects a cautious stance in the rapidly evolving landscape of digital currencies.
