MNI POLICY: BOC Preparing Digital Currency, No Plan to Issue>

--Lane Says Digital Currency May Be Needed In Future

By Greg Quinn

     OTTAWA (MNI) - The Bank of Canada is mapping out how it might issue 

a digital currency in case the decline of cash or new private forms of 

money shake up the financial system, Deputy Governor Tim Lane said 

Tuesday. 

     There are no current plans to issue a digital currency and the 

government would have to alter legislation to permit such a change, Lane 

said.

     The speech and a 17-page discussion paper is the strongest signal 

yet about Canada may deal with the popularity of digital payments and 

challenges to sovereignty from private alternatives like Facebook's 

Libra and bitcoin. The Canadian dollar must remain as the dominant way 

to settle accounts or policy makers' ability to guide the economy by 

changing interest rates or act as the lender of last resort will be 

undermined, the BOC said. 

     "There is not a compelling case to issue a CBDC (Central Bank 

Digital Currency) at this time," Lane said in a speech in Montreal, 

remarks that made no comment on the current economic outlook. "We need 

to move forward to work out what a potential CBDC might look like and 

how it could be managed, if the decision were ever taken to issue one." 

     The BOC doesn't plan any central bank digital currency that would 

"replace bank notes or chartered bank deposits," Lane said, ruling out 

the idea of giving Canadians accounts at a central bank where they could 

hold their digital cash. That scenario would be a major disruption to 

regular banks. 

     The rise of Libra shows "how the Bank needs to respond to the 

future of money," Lane said. Canadians are also embracing digital 

payments, with one-third of transactions done in cash in 2017 versus 

more than half a decade ago. "The world can change very quickly."

     The BOC has not committed to issuing a digital currency even if any 

scenario of the decline of cash or a surge in use of private money 

emerges. 

     Still, there is a scenario where a major private currency "would 

erode competition and privacy and pose an unacceptable challenge to 

Canadian monetary sovereignty," Lane said.

     The BOC background paper said if use of the Canadian dollar was 

threatened, it would potentially create an outside force that alters the 

purchasing power of Canadians, make it harder for the BOC's overnight 

rate to influence lending across the economy, and interfere with lender 

of last resort activities. 

     "But a CBDC could only be launched successfully if Canadians want 

it," Lane said. 

--MNI Ottawa Bureau, +1-613-314-9647, greg.quinn@marketnews.com

[TOPICS: M$C$$$,MACDS$]