A government-owned cryptocurrency may be necessary for a competitive digital economy, according to a Bank of Canada report.
As the analysts of the Bank of Canada note in the report “Positive reason for the state cryptocurrency”, the digital currency issued by the Central Bank will provide consumers with the opportunity to store their money without risk outside banks, increasing competition in the retail deposits market.
The government’s cryptocurrency will also enable consumers to dispense with payment service providers such as credit card issuers. According to antitrust regulators, these companies often implement practices of undermining free competition.
The authors of the report argue that the state-owned cryptocurrency may be a “well-considered decision” to combat the monopoly of traditional financial and technology companies, as well as negative external factors “at least” in payments. In addition, government cryptocurrencies, endowed with smart contract programming, will spur vigorous innovation and competition in digital services.
However, smart contracts come with risks: software bugs, vulnerability to cyberattacks, scalability issues, and the complexity of transferring off-chain data to the blockchain. In the report, the Bank of Canada confirmed its previous position, according to which there are two possible scenarios in which a state cryptocurrency may be issued in the country.
The first case implies a less widespread use of cash in Canada, and the second – the rise in popularity of alternative digital currencies, which could threaten the country’s monetary policy. According to analysts of the Central Bank, the second scenario is unlikely. If the state cryptocurrency is still released, it will be necessary to develop appropriate regulation.
In May, Timothy Lane, who leads the Bank of Canada research on fintech and cryptocurrencies, announced that the regulator is working on more specific options for using the state cryptocurrency. However, so far the Bank of Canada has not found “meaningful uses” for government digital currencies.