Introduction: Payments Canada’s CBDC Series

November 19, 2020

The concept of Central Bank Digital Currencies (CBDC) has been a topic in the payments ecosystem for some time¹for interbank payments as well as everyday transactions.

In payment systems around the world, large banks settle daily obligations through adjustments to digital accounts they hold at central banks.²

However, interest in CBDC has accelerated in recent years, fueled partly by the substitution of banknotes for private electronic payments in general-purpose payments. The rise of alternative, non-sovereign and borderless digital currencies, such as Bitcoin and Libra - and, perhaps more importantly, their underlying distributed ledger technology for exchanging and recording token-based payments - has also driven consideration of a CBDC. Central banks are also re-exploring interbank “wholesale” payments to evaluate the potential of tokens and distributed ledger technology for settlement of securities and other assets.

This interest seemingly reached a tipping point in 2020, and has been accelerated even further by the Covid-19 pandemic and the ensuing migration to digital payments. In fact, a recent Bank for International Settlements (BIS) paper indicates that, “...a full 80% of surveyed central banks are engaging in research, experimentation or development of CBDCs.” Canada is no exception; in January 2020, the Bank of Canada, along with five other central banks and BIS, announced the creation of a working group to share experiences and knowledge as CBDC implementation is considered.³

To support these efforts, Payments Canada is introducing a series of educational papers that will provide an understanding of a potential CBDC issuance in the Canadian context along with an exploration of the potential economic and social implications. These papers will provide a base of understanding for furthering the discussion around CBDC in Canada and its impacts on key players in the payments industry and end users.