The world’s central banks are taking a closer look at making digital currencies available to the general public, according to a new report from the C.D. Howe Institute.
The report found that central bank digital currencies (CBDCs) — in the form of digital tokens or accounts held directly at a central bank — could eventually become necessary, given the rise of Bitcoin and other private-sector variants.
Proponents of CBDCs say they would provide “a more stable unit of account, a more efficient medium of exchange and a more secure store of value,” according to the report. They also believe CBDCs would temper financial instability and reduce tax evasion, among other things.
But there is also concern that CBDCs could have a destabilizing effect on the economy and “act as a dangerous accelerant in the context of a bank run,” the report said. Furthermore, there are questions about the impact CBDCs could have on the competitive position of commercial banks and key financial market infrastructures.
“In the end, the best way forward for Canada and other countries may not involve the introduction of a CBDC,” wrote report author John D. Murray, former deputy governor of the Bank of Canada. “Some active government engagement now would nevertheless seem advisable to ensure the most promising ways forward are not precluded. Simply leaving it to the market to sort out would be very risky.”
Read the full report here.