- Central bank digital currencies may be needed to maintain digital competition, according to the Bank of Canada.
- Adopting the CBDC would also spur innovation and increase welfare, the bank said in a research note.
- Central banks in the US, EU, China, and elsewhere are researching or testing CBDCs.
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Central bank digital currencies (CBDCs) may be needed to ensure innovation and competition in digital economies, the Bank of Canada said in a research paper released Tuesday.
As the economy becomes increasingly digital, several issues have emerged that could be addressed through CBDCs. These include competition-related issues in sectors such as payment options, a resulting lack of innovation and development or exploration of new technologies, and an increased risk of abuse of market power. by large financial organizations, as cash becomes less relevant in society.
According to the Bank of Canada, the introduction of a CBDC could solve these problems more effectively than regulations and policies would.
“In general, a CBDC as a basic outside option for payments could discipline the market,” the newspaper said. “Further, as a competition tool, a CBDC might be simpler than crafting new competition policies in the complex and changing environment of big technology, and simpler than attempting enforcement through battles. legal long and uncertain, “he continued.
CBDCs could also facilitate the use and development of technologies such as smart contracts and programmable money, as their framework could be made available to the public and thus create common ground for innovation.
Finally, CBDCs could also protect and even increase levels of well-being, according to the Bank of Canada. The potential emergence of new markets and applications could increase welfare, while additional protection for consumers from abuse of market power would prevent welfare from declining, according to the report.
The Bank of Canada has not yet decided whether or not to further develop a CBDC and is currently researching and evaluating its options.
The United States is at a similar stage in the process of potentially creating a digital dollar. Earlier this year, Federal Reserve Chairman Jerome Powell said the central bank is still exploring the potential of a CBDC and will issue a report this summer. Last week, the European Central Bank also announced that it was launching a two-year exploration on a possible digital euro.
Elsewhere, CBDCs are at more advanced stages – China, for example, has started testing the digital yuan in various cities and is now using the data collected to make adjustments. The country also said international visitors could use the CBDC during the 2022 Beijing Winter Olympics.