The introduction of Libra, Facebook’s attempt at digital currency in 2019, energized digital asset proponents who said the new technology would transform the banking landscape with a blockchain-based stablecoin payment and cryptocurrency network.
In an interview with PYMNTS, Andreas Veneris, a professor of electrical and computer engineering science at the University of Toronto, described Facebook’s action as a watershed moment for central banks to consider reinventing the essence of fiat cash after more than 2,000 years.
Veneris was part of a team commissioned by the Bank of Canada (BoC) to write a technical report on Loonie, Canada’s proposed digital currency. The group of researchers assisted in the design of a contingency plan for a central bank digital currency (CBDC) in Canada.
The Central Bank Digital Loonie: Canadian Cash for a New Global Economy concluded that a CBDC payment network is a critical technology that millions of Canadians will rely on.
The study proposed a two-phased know your customer-backed approach for a CBDC crafted to mitigate risks on a global scale, promote financial inclusion and welfare, and safeguard Canada’s socioeconomic sovereignty in the IoT/5G-and-beyond/AI era, researchers wrote.
But the issuance of a CBDC is no small task. The 76-page report found before implementation, it must protect customer data, past social investments, elicit geopolitical trends, and provide value to Canadians. The paper established a two-part plan for going forward.
“Although the BoC has not committed to issue a CBDC, it already has a concrete contingency plan,” the report noted. “The findings here urge it to issue digital-cash sooner rather than later. After all, as Arthur Clarke squarely put it: ‘the truth, as always, will be far stranger.”
One incentive for Canada’s CBDC is China has already introduced its digital yuan or e-CNY, the digital version of China’s sovereign currency.
“We don’t want to go down to Spadina Avenue, Toronto’s Chinatown, unable to pay with Canadian dollars and (instead) pay with digital yuan.”
The digital concept for Canada comes, he said, amid payment networks that are slow, expensive, and obsolete.
“When you give someone $20, you don’t pay a fee, but when you do it electronically, the average person doesn’t realize they pay 12% in fees to payments networks,” he said. “In places like Africa or Latin America, where their economies are struggling, their fees skyrocket to as much as 20%.”
Existing payments systems cannot accommodate the new digitization of the economy such as smart contracts, automation, and speed.
Today, he noted, when you buy a product online, the merchant routinely receives payment days after it was delivered.
As far back as 2016, the BoC launched Project Jasper with the goal of understanding how distributed ledger technology which could transform the future of payments in Canada.
The BoC’s Project Jasper marked a milestone in the payments industry. It was the first time a central bank participated in a distributed ledger technology (DLT) experiment in partnership with the private sector. DLT is a protocol that enables security of a decentralized digital database.
This collaborative research initiative between the public and private sectors produced a four-part plan aimed at understanding how DLT could transform the payments system.
But after years of study and several white papers about a digital currency, including a proposed infrastructure, the central bank hasn’t seen an immediate need to issue one.
Still, Veneris insists Canada has been a leader in the digital payments space and is well ahead of many other countries. BoC is among the top three central banks to understanding of CBDCs, he said.
Since 2013, Toronto has been a hot hub of blockchain technology, Veneris noted.
“It’s a very, very active city,” he said. “Bank of Canada was the first bank that invited academia and said ‘Tell us what you think, give us a design.’”
As for Libra, the moniker has since been rebranded as Diem, Facebook transitioned to Meta Platforms Inc. and Silvergate Capital Corp., the California-based provider of financial solutions for the emerging digital currency sector, acquired Diem Group’s blockchain payment network in January.
“We know that Diem is not moving forward the way that it was originally planned, so you don’t want to completely extinguish the Canadian dollar,” Veneris said.