Several governments across the world are now contemplating adopting a central bank digital currency (CBDC). The reduction in cash used during the pandemic, as well as the rising use of digital payments, may have fueled this heightened interest.
A CBDC, according to the Bank of Canada, would give customers a non-bank option for risk-free asset storage, therefore increasing market competitiveness for retail deposits.
According to the central bank, a digital currency would also allow customers to circumvent payment service providers such as credit cards, which have been criticized for anti-competitive activity by regulatory authorities worldwide.
The central bank reiterated its previous position that it may issue a CBDC in Canada in two scenarios: either because cash is no longer extensively used in Canada or because a competing digital currency is widely utilized to the extent where the country’s financial autonomy is challenged.
According to the Bank of Canada report, CBDCs equipped with scalability via smart contracts would foster vigorous innovation and growth in internet platforms.
The bank also mentioned that smart contracts have vulnerabilities, such as programming flaws, susceptibility to hacking attempts, sustainability difficulties, and the complexity of integrating off-chain data into the blockchain.
Many governments have taken positions on CBDCs in the last few days. While China is busy testing the Digital Yuan, nations such as New Zealand are surveying the public on the potential of CBDC. At the same time, the UAE has formally declared that it would introduce CBDCs between 2023 and 2026.