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Bank of Canada Statutory Digital Currency Report: Central Bank may benefit from the issue of an encrypted version of the legal tender

The central bank may benefit from the issue of an encrypted version of the legal tender, but the benefits depend on whether developed and developing countries do.

Ben Fung from the Bank of Canada and Walter Engert from the OGCIO of Canada this week published a paper discussing the pros and cons of the central bank's issuance of cryptocurrencies .

It is noteworthy that the end of this paper asks if these agencies are worth cash or central bank digital currency (CBDC), which may need to be at the expense of cash if demand slides to some extent.

The paper wrote:

"Is it enough for the central bank to provide only qualified financial institutions? In other words, is" a cashless society "a good result?"
The paper continues to explore six different benefits of digital currency issuance by the central bank, but in three main areas: consumer payments, financial inclusion and stability.

For consumer payments, the author writes, "CBDC will drive the current abandoned transactions because the friction of these types of transactions hinders the transaction." In particular, the CBDC will reduce friction in the online payment process, And to attract small businesses to provide services over the Internet. In some economies, they also get the benefit of reducing the cost of retail payments.

The author believes that financial inclusion will only bring real benefits to developing economies, and cites several other existing solutions (such as the M-PESA system in Africa) that seem to narrow the gap just as digital money does.

The authors wrote:

"In developed economies, including Canada, financial inclusion does not create a convincing incentive for CBDC."
Finally, the paper gives the complicated result that the financial stability will bring.

On the one hand, "The financial systems in Canada and elsewhere gain liquidity and maturity transitions through highly leveraged banks and operate at the core of the payment system, which, as is known, may not be stable in some situations. In severe cases, the stock of the internal currency may contract, which will negatively impact the economy on the external playing field. "

Digital money can give consumers a way to store their money in a substantially risk-free manner. On the other hand, the convenience of bank deposits becoming a legal cryptocurrency can exacerbate the financial turmoil.