Major Canadian universities have submitted new research to the Bank of Canada centered around the development of a central bank digital currency, or CBDC, underscoring the innovation underway in this space.
The research began last year after the BoC engaged four institutions around potential designs for a national cryptocurrency. A total of three proposals were published simultaneously on Thursday. Notably, each proposal was based on the application of blockchain technology.
The submission from the University of Calgary leverages “a mix of distributed ledger technologies (DLTs) and electronic cash (“e-cash”) schemes with advanced cryptographic primitives.” The submission focuses extensively 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 from McGill University in Montreal focuses on “asymmetric privacy between the receiver and the sender of money.” The researchers show that privacy protection is necessary to avoid price distortions and promote the integrity of the classical demand function of money.
A joint submission from the University of Toronto and York University promotes a Know Your Customer-backed approach to increasing financial inclusion and safeguarding economic sovereignty during the advent of disruptive technologies like the Internet of Things and Artificial Intelligence. According to this approach, the rollout of a digital loonie will take place over two phases, beginning with the establishment of “digital cash with an authentication protocol” followed by programmable e-money based on “blockchain as a common resource.”
In introducing the reports, the BoC confirmed that it is “ramping up contingency planning for a central bank digital currency,” but currently has “no plans to issue one.” That being said, some voices within the BoC are adamant that the country needs a so-called “digital loonie” sooner rather than later.
In a Wednesday speech, deputy governor Timothy Lane said the COVID-19 pandemic has accelerated the need for a digital currency:
"The pandemic may bring us to a decision point sooner than we had anticipated."
South of the border, central bankers in the United States are also broadening their research into CBDCs. Federal Reserve economists have issued several research papers exploring the value drivers of a digital dollar, though no official decision on a roll-out has been made.