The C.D. Howe Institute says the Bank of Canada should develop a digital dollar to take advantage of new payment technologies.
The think tank says the digital currency should be a stablecoin, in a new report. Unlike other cryptocurrencies such as Bitcoin, stablecoins are linked to fiat currency or conventional assets.
In this case, the digital currency would be linked to the Canadian dollar and could be converted to cash.
The C.D. Howe Institute says the digital currency should be in token form, with decentralized technology for settling transactions. It should also be well-designed and regulated from business conduct, competitive, operational, privacy and prudential perspectives.
According to the report, issuing a digital currency could encourage the private sector to introduce Canadian dollar-linked stablecoins by enabling convertibility to take place digitally without having to rely on physical banknotes.
The think tank says the stablecoin platform should have access to central bank liquidity facilities to ensure smooth transactions and deposit insurance to mitigate the risk of runs.
The Bank of Canada has said it is exploring the feasibility of a digital dollar but has not committed to adopting one anytime soon.
Earlier this year, Bank of Canada Deputy Governor Timothy Lane was critical of private sector cryptocurrencies, calling them “deeply flawed as methods of payment.”
"The Bank will continue to explore the possibilities of a digital currency that would be an electronic version of the banknotes that Canadians trust and rely on," Lane said in a speech this past February.
