Major Canadian universities have submitted new research to the Bank of Canada, focusing on the development of a Central Bank Digital Currency (CBDC), highlighting ongoing innovations in this area.
The research began last year after the BoC commissioned four institutions with possible designs for a national cryptocurrency. A total of three proposals were published simultaneously on Thursday. In particular, each proposal was based on the application of blockchain technology.
The University of Calgary submission is based on “a mixture of DLTs (Distributed Ledger Technologies) and E-Cash systems (E-Cash) with advanced cryptographic primitives”. The filing is largely focused on promoting universal CBDC access, especially in remote communities, as well as ensuring strong privacy protections that are consistent with Canada’s civil liberties.
A design by McGill University in Montreal focuses on “asymmetrical privacy between recipient and sender”. The researchers show that the protection of privacy is necessary in order to avoid price distortions and to promote the integrity of the classic demand function of money.
A joint submission by the University of Toronto and York University promotes a Know Your Customer-powered approach to increasing financial inclusion and maintaining economic sovereignty amid the rise of disruptive technologies like the Internet of Things and Artificial Intelligence. According to this approach, the introduction of a digital loonie takes place in two phases, starting with the establishment of “digital cash with authentication protocol”, followed by programmable e-money based on “blockchain as a common resource”.
In launching the reports, the BoC confirmed that it is “pushing contingency planning for a central bank digital currency” but currently has “no plans to issue such a currency”. Nevertheless, some voices within the BoC are firmly convinced that the country needs a so-called “digital loonie” sooner rather than later.
In a speech on Wednesday, Deputy Governor Timothy Lane said the COVID-19 pandemic had accelerated the need for a digital currency:
“The pandemic could bring us to a decision point sooner than expected.”
South of the border, US central bankers are also expanding their research on CBDCs. Federal Reserve economists have published several research papers examining the value drivers of a digital dollar, although no official decision has yet been made about its introduction.