Bank of Canada accelerates work on digital currency amid pandemic

Julie Gordon and David Ljunggren
·2 min read
FILE PHOTO: Governor of the Bank of Canada Tiff Macklem walks outside the Bank of Canada building in Ottawa

By Julie Gordon and David Ljunggren

OTTAWA (Reuters) - The COVID-19 pandemic has added urgency to the Bank of Canada's development of a digital currency and a decision could come sooner than previously thought, a senior policymaker said on Wednesday, though he noted that a launch was not a "foregone conclusion."

Bank of Canada deputy governor Tim Lane, speaking to a digital intelligence audience, also noted that while the pandemic has boosted cryptocurrencies like Bitcoin, recent prices spikes look like "speculative mania" and said the offerings are not plausible as the currency of the future.

"For several years, the Bank of Canada has been analyzing which circumstances might lead Canada to decide to issue a digital currency. The pandemic may bring us to a decision point sooner than we had anticipated," said Lane.

While the pandemic had accelerated the central bank's work to prepare for potential launch of a digital dollar, that day has not yet arrived, said Lane.

"A digital currency is by no means a foregone conclusion," he said, later adding that Canada is front-runner among its peers on development, but behind countries like China, which has launched pilots of its offering.

Lane, in a Q&A session, played down concerns over China getting first-mover advantage saying that Canadians are unlikely to use a digital renminbi for everyday purchases, but noted a widely adopted option could pose a risk.

"We can certainly imagine a situation where other central banks would launch a digital currency that could come to be used increasingly in Canada," he said. "If that were to happen... that could start to threaten the role of the Canadian dollar."

Bolstering the chance of Canada launching its own digital currency is a recent shift by Canadians away from using cash, though Lane noted it was unclear if that would continue post-pandemic, and the rise of "deeply flawed" cryptocurrencies.

"Cryptocurrencies such as Bitcoin do not have a plausible claim to become the money of the future," said Lane. "The recent spike in their prices looks less like a trend and more like a speculative mania."

Lane added that while there is more potential in so-called stablecoins, backed by safe assets, serious data privacy concerns remain, especially if offered by technology companies that already mine customer data for profit.

"If that business model were used as a foundation for the dominant method of payment in the economy, the issuer would gain control over an enormous range of data - bringing with it overwhelming market power," he said. "In effect, a technology company could become the gatekeeper of the entire economy."

Facebook has announced plans to launch a stablecoin, prompting global political leaders to worry about regulation.

(Reporting by Julie Gordon and David Ljunggren in Ottawa; Editing by Nick Zieminski)