The Internet has been steadily digitizing our monetary systems – The first online e-commerce payments were followed by the ability to email money to others, through to a modern day world of Bitcoin.
The transformation is not yet complete, cash is still widely used but some argue it’s inevitable that eventually we will evolve fully to a world entirely without it.
How will these advances ripple through the system? For example the Bank of England warns that the emergence of a cryptocurrency economy may weaken or eliminate bank credit issuance.
The Canadian Digital Dollar
The full blown digitization of national currencies, “CBDCs” – Central Bank Digital Currencies, is the grand prize and Canada is well positioned to lead the trend globally.
It’s a behemoth of a worldwide opportunity now taking shape – In the USA former CFTC chair Chris Giancarlo has set up a not-for-profit called the Digital Dollar Foundation, to pioneer the creation of a US central bank digital currency (CBDC). In his presidency campaign Michael Bloomberg proposed creating a regulatory framework for cryptocurrencies in a new financial regulation plan.
The World Economic Forum says it’s time to take them seriously, CNBC explores what they would look like, the US Federal Reserve published a literature review, the IMF a set of considerations for their use and Brookings a set of design options. The Bank of England offers this discussion paper to explore the topic in detail and HSBC comments on them here.
Early pioneers include Switzerland, Ghana and the Marshall Islands seeking to blaze the trail, and China has ambitions to lead the world in this field.
There are concerns and critics of course. Coin Telegraph writes that they have the potential to upend global finance, and also that they are dead in the water, and the Economist asks if they will break the banking system.
Leading Canada’s Blockchain Revolution
A Canadian visionary in this field is Alex Tapscott. He articulates the scale of the transformation he believes is coming through explaining that while the Bitcoin revolution has been massive, it will still only be a bit player in comparison.
Indeed he defines it as the wholesale reinvention of capital, a journey he foresees in his 2016 presentation ‘Blockchain is Eating Wall Street‘.
Alex tells of how in August 2019, central bankers around the world assembled for their annual Jackson Hole symposium, where Mark Carney endorsed what could be the largest change in the global financial system since the 1944 Bretton Woods agreement.
At the symposium, Carney argued for replacing the U.S. dollar as the reserve currency with a new global currency, entirely digital, and backed by a basket of digital currencies from a number of central banks.
With Canada’s optimum size, scale of banking sector and mix of industry expertise across fields like payments and the Blockchain, the country is uniquely positioned to move quickly on this opportunity and in a meaningfully substantial manner.
Already early innovators like the City of Calgary are pioneering the path and the Bank of Canada has laid the groundwork. In Dec 2020 Timothy Lane, deputy governor of the bank and head of research at the fintech and crypto department, claimed that Canada’s CBDC might see the light of the day “sooner than expected.”
According to Lane, the predicted decline in COVID-19-fueled cash transactions has been happening more rapidly than the bank had previously expected. This could trigger the bank to issue a CBDC sooner that it originally planned.