MNI POLICY:BOC Accelerates Digital Currency Work as Cash Fades

The Bank of Canada is accelerating work exploring a digital currency as the pandemic further diminishes the use of cash, while warning that bitcoin speculation and privacy concerns around stablecoins mean those probably won't be authorized ahead of money backed by the central bank.

"The pandemic may bring us to a decision point sooner than we had anticipated," Deputy Governor Tim Lane said in the text of a speech Wednesday to a Montreal audience, without giving any specific timeframe. "A digital currency is by no means a foregone conclusion."

"Even in this increasingly digital economy, though, cryptocurrencies such as bitcoin do not have a plausible claim to become the money of the future. They are deeply flawed as methods of payment—except for illicit transactions like money laundering," Lane said. "The recent spike in their prices looks less like a trend and more like a speculative mania—an atmosphere in which one high-profile tweet is enough to trigger a sudden jump in price."

The remarks didn't provide any update on whether the federal government would give the central bank the needed legal authorization to proceed with any digital currency, a concept Lane underlined is also gaining traction internationally. Canada may come to a "tipping point" around how many businesses and individuals are willing to deal in cash, Lane said, noting that Covid-19 has led even many small stores to shift to invest in digital payment systems.

While stablecoins could work better than a cyrptocurrency, concerns around the harvesting of personal information means a central bank is in a better position to control them, Lane said. Any currency would also need to provide Canadians with universal access, he said.