The Bank of Canada has Released a Working Paper Outlining Potential Benefits of Introducing a Central Bank Digital Currency

The Bank of Canada has release a working paper titled ‘Central Bank Digital Currency & Monetary Policy’ outlining some of the potential benefits introducing a CBDC (Central Bank Digital Currency) could bring to both Canada and the US.

The working paper has been produced by the Bank of Canada’s S. Mohammad R. Davoodalhosseini who explains that many central banks considering issuing a CBDC wonder if it can co-exist with the traditional forms of payment and cash. The paper outlines some of the benefits to introducing a CBDC such as the ease to convert bitcoin or exchange crypto.

A CBDC will only be beneficially to a central bank and its economy if the implementation costs are not too great. The paper states how monetary policy wold be affected by the introduction of a CBDC such as flexibility. It would give a central bank the ability to fully monitor portfolios and cross-subsidise between digital currencies, not possible with cash.

The paper depicts using just a CBDC will only be beneficial if the motivation is to improve monetary policy effectiveness. It is suggested in the paper that Canada could see estimated welfare gains of up to 0.64% and 1.6% for the US.

Smaller businesses would benefit from online payments with a CBDC due to the speeds of which transactions are facilitated and its potential reach. They may see a reduction in the cost of transactions such as to other businesses.

If the Bank of Canada introduced a CBDC, those currently investing in cryptocurrency will be able to cash out bitcoin for a sovereign backed CBDC.

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