Central Bank of Canada thinks "a CBDC can enable a vibrant and competitive digital economy."
Central Bank of Canada thinks "a CBDC can enable a vibrant and competitive digital economy." By Editor DailyBitcoin Editor

In a paper, the Central Bank of Canada argues that a central bank digital currency is likely to be positive for Canadians, breaking up monopolies in big tech and traditional finance.

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A central bank digital currency is “likely necessary” for a competitive digital economy, the Bank of Canada said in a paper released dated July 20, 2021.

A CBDC would give consumers a non-bank option to store their money without risk, increasing competition in the retail deposit market, said the paper titled “The Positive Case for a CBDC,” signed by Andrew Usher, Edona Reshidi, Francisco Rivadeneyra and Scott
Hendry of the Bank of Canada’s Banking and Payments department.

A digital currency would also allow users to bypass payment service providers, such as credit cards, that global antitrust watchdogs have said exhibit anti-competitive practices, the paper says.

Digital currency could be a “measured way”

to combat large technology monopolies and negative externalities “at least” in payments, the text says.

Central banks around the world are studying the feasibility of a digital currency, being China the one that has advanced the most with the tests, even publishing its white paper; although the Bahamas is already ahead of it and last year launched its CBDC

.

More from the Canadian document

Textually, in the introduction, the document states:

“Our first key argument is that, without a public digital payment option, current competition-related problems are likely to worsen and promising future markets may not fully realize or fairly distribute the benefits of innovation. In other words, a CBDC may be necessary in the future to ensure a competitive digital economy. More specifically, a CBDC, as a simple external option, may be a more effective competition tool in digital payments than the current regulatory and legal enforcement approach. Moreover, with the increasing digitization of the economy, cash is becoming less relevant as an external option for payments, increasing the potential for market power abuses in payments.

Second, we argue that a CBDC can enable a vibrant and competitive digital economy. The digitalization of the economy seems to herald a new generation of general-purpose technologies with high societal value, for example, the Internet of Things(IoT) and programmable money. A CBDC could support the efficient functioning of new markets using these technologies, thereby fostering competition and innovation.”

The Bank of Canada paper also argues that CBDCs equipped with programmability through smart contracts will generate vibrant innovation and competition in digital services. Precisely, the digital yuan, according to its white paper will have such functionality.

The bank also noted that smart contracts come with risks: software bugs, vulnerability to cyber attacks, scalability issues and the difficulty of bringing off-chain data to the blockchain.

The central bank reiterated its previous position that there are two potential scenarios under which it could issue a CBDC in Canada: either because cash was no longer widely used in Canada, or because an alternative digital currency was so widely used that it threatened the country’s currency sovereignty. However, the bank said the latter scenario is unlikely.

But even if a CBDC is issued, anti-competitive regulation is still likely to be necessary, the paper said.

The paper concluded:

“Finally, a CBDC could be a tool to promote digital innovation by helping to prevent coordination failures and by providing open access to promising general-purpose technologies such as programmable money. This aspect is still somewhat speculative as the social benefits of some of the touted benefits, such as smart contracts, remain to be seen. Also, more research needs to be done to identify the need for government intervention.”

Sources: Central Bank of Canada, Coindesk

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