As central banks around the world explore central bank digital currencies (CBDCs), the Bank of Canada (BOC) is keen to stress that rollout efforts don't require coordination between nations — and may not even need blockchain technology at all.
CBDCs are digital forms of fiat currencies that are controlled by a nation’s monetary authority, with rollout programs currently overseen by supranational working groups. In 2020, it was announced that officials from the Bank of International Settlements and the Bank of England would oversee a six-strong group of central banks, including the BOC, as they pool together research on CBDC use cases.
Yet Dinesh Shah, the BOC’s director of fintech research, told The Block in an interview last week that reaching consensus on CBDC implementation with other central banks is “not a central focus” — unless the bank chose to explore cross-border payments.
Ultimately, Shah says that decisions regarding a CBDC are specific to individual countries due to their differing payment systems. He explains that the six-strong group formed in early 2020 primarily exists to pool research.
“Even if there’s no consensus, that open sharing of ideas is very valuable,” he adds.
In Canada, research on this topic began around 2010, with Shah joining as the BOC’s first technologist in 2014. While one of his first tasks was explaining the technology behind bitcoin to policymakers and economists, the catalyst for the research was not crypto itself, but the decline of cash.
“At the Bank of Canada, what [the research] really came out of was not really thinking about cryptocurrencies, but it was more what was happening with cash demand,” he says. “Like in many other countries, there's been this steady decline in everyday cash use, even though there's been an increase in the amount of cash out there in the economy.”
No set decision
Shah stressed that no formal decision has been made to issue a Canadian CBDC. It’s still quite early days, he says — so much so that the role of blockchain technology, decentralized digital ledgers that underpin the vast majority of cryptocurrencies, in designing any CBDC is not clear.
Blockchain technology “is not a given but it’s still on our list of potentials,” he says, noting that he has displayed some skepticism in the past about its fit with a retail CBDC. His views echo that of other central bankers, notably Thomas Moser of the Swiss central bank.
Recently, the BOC announced a 12-month research project with MIT.
Although it’s currently unclear what form their research findings will take — “depending on what we find, there may be some papers that come out of it” — he confirmed that the bank will collaborate with the Bank of England and the Federal Reserve Bank of Boston, which are also MIT research partners.
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