During a conference that took place in Ukraine, several central bankers rejected the idea of launching a CBDC. They believe that this alternative has no real benefits over existing digital options. One central bank that is unimpressed by a CBDC is Canada.
Canada Dismisses Sweden’s Central Bank Digital Currency
Recently, Sweden announced that it was launching a trial run for a CBDC. However, the central bank of Canada is unimpressed by this idea. They do not see the need for securing their national currency with a blockchain.
The central bank of Ukraine tested a digital currency in 2018 for a few months. After the trial, it said that it had not seen any real benefits to creating such a digital currency. Canada’s central bank said that it did not see any real advantages to a CBDC. This is despite an earlier report, which showed that a CBDC could help to stimulate a more competitive banking industry.
The report said that a CBDC could help to boost the efficiency of bank intermediation and lead to a growth in lending and aggregate output even if usage was low. It said that a CBDC would serve as an extra option for households, which would limit the banking industry’s power in the deposit market. The report also claimed that a CBDC could help to increase lending by about 7% and help to boost output by about 1%.
In 2016, Canada conducted a pilot study, which was named Project Jasper. The project, conducted in collaboration with Payments Canada wanted to look at how the blockchain would affect the nation’s payments infrastructure. According to an official from the Canadian Central bank, who was present at the Kyiv conference, there was no need for a DLT if you wanted to create a CBDC.
Central Bank Slow Down on CBDC
A policy advisor from the Dutch central bank also questioned the logic of issuing a CBDC using the DLT. He noted that the purpose of the DLT was to ensure trustless transactions. As such, a DLT should not be in the hands of a single party, since that is against what it stands for.
These doubts about issuing a CBDC come amidst a report by the IMF and BIS, requesting central banks globally look into the issuance of a blockchain-powered CBDC. Recently, the former head of the CFTC launched a non-profit called Digital Dollar Project that aims to encourage the US Federal Reserve to issue a CBDC. The European Central Bank has also been exploring the possibility of issuing a CBDC.
The Facebook Libra Connection
There has been a lot of hype around CBDC since Facebook Libra was announced. It would appear most central banks are not interested in the efficiency they would offer. Rather they are driven by the fear of ensuring that Facebook Libra does not gain a foothold in the economies. Besides trying to launch their digital currencies, central banks are also exploring policies that would lock out Facebook Libra from their economies.
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