Canada Seeks Regulation For Digital Currencies

The Bank of Canada (BoC) has released a new paper titled "Canadian Bank Notes and Dominion Notes: Lessons for Digital Currencies," which outlines the BoC’s position on digital currencies. The paper, authored by BoC research members Ben Fung, Scott Hendry, and BoC visiting scholar Warren E. Weber, uses historical analysis to compare digital currencies to private bank and government-issued notes. As per the paper:

“Because both of these notes shared many of the characteristics of today's digital currencies, the experience with these notes can be used to draw lessons about how digital currencies might perform.”

• The BoC believes that several lessons can be learned from how bank notes were initially circulated in Canada and the United States as a media of exchange. As a result of their analysis, the BoC was able to deduce that:

• Digital currencies likely will be counterfeited

• Digital currencies likely will not be inflationary

• Private digital currencies will not be safe and will not be a uniform currency without government intervention

• A central bank can always get its digital currency into circulation, but its digital currency will not necessarily drive out existing private digital currencies

Consequently, the report emphasizes that privately held digital currencies are a threat to the Canadian economy and that government intervention will be a requirement for both privately-issued and government-issued digital currencies. 

“We conclude that well designed and managed private digital currencies could circulate widely but only with appropriate government regulation to ensure their safety, soundness, and uniformity.”

This analysis comes months after the Bank of Canada announced Project Jasper, an initiative that involved the issuing, transferring, and settling of central bank assets on the blockchain, using a digital alternative to the Canadian dollar called the CAD-Coin. Some of Canada’s largest banks participated in the experiment, including Royal Bank of Canada, CIBC, and TD Bank, as well as the payment clearing and settlement system organization, Payments Canada. However, despite the trial run with digital currency and the blockchain, the BoC’s recent position remains consistent with remarks made by BoC Senior Deputy Governor Carolyn Wilkins, in June 2016:

“None of our experiments are to develop central-bank issued e-money‎ for use by the general public.”