The Bank of Canada has decided to scale back its work on retail central bank digital currency (CBDC) to focus on more immediate concerns related to payments systems and regulation. According to an update on the central bank’s website, while research on CBDCs will continue, the bank is shifting its priorities to broader payments system development and policy work.
A Shift in Focus
The central bank had previously indicated that its work on a retail CBDC was part of a “contingency plan”—a strategy to be used only if the need for such a currency became evident. However, with other issues now taking precedence, the Bank of Canada is reducing its focus on CBDCs. The statement explained that increasing attention to other payment system matters has prompted this shift:
“With other payments issues gaining prominence, the Bank is scaling down its work on a retail central bank digital currency and shifting its focus to broader payments system research and policy development.”
The decision comes as Payments Canada, the organization responsible for overseeing the country’s payment clearing and settlement system, continues to develop the Real-Time Rail instant payment system. This retail-focused system aims to modernize the country’s payment infrastructure and includes more than 100 members, including the Bank of Canada.
New Regulatory Responsibilities
Another driving factor behind this refocusing is the Bank of Canada’s expanding regulatory duties. Under the Retail Payment Activities Act of 2021, the central bank will soon assume a more active role in regulating the country’s retail payment service providers. Starting in November, the Bank will begin registering over 2,500 small payment service providers, who were previously only subject to Anti-Money Laundering regulations. By 2025, these providers will also need to meet new operational risk standards enforced by the central bank.
Why the Shift?
Although the Bank of Canada has been involved in extensive CBDC research, partnering with institutions like the Bank for International Settlements and the Massachusetts Institute of Technology (MIT), its own findings revealed that there is little public demand for a digital currency in Canada. Additionally, the research highlighted potential drawbacks, such as the impacts a CBDC could have on the financial system and consumers.
Despite scaling back its efforts, the Bank remains open to the possibility of developing a CBDC in the future, should the demand arise. It stated that its research would remain useful if, at any point, Canadians—through their elected officials—decide that a digital version of the Canadian dollar is necessary.
