{"id":91972,"date":"2022-03-03T13:32:49","date_gmt":"2022-03-03T13:32:49","guid":{"rendered":"https:\/\/interac1.wpengine.com\/?post_type=content&p=91972"},"modified":"2025-05-30T12:29:01","modified_gmt":"2025-05-30T16:29:01","slug":"central-banks-shake-up-the-future-of-money-with-digital-currencies","status":"publish","type":"content","link":"https:\/\/www.interac.ca\/en\/content\/business\/central-banks-shake-up-the-future-of-money-with-digital-currencies\/","title":{"rendered":"Central banks shake up the future of money with digital currencies"},"content":{"rendered":"\n

Money has evolved from shells to coins to bank deposits. Today, deposits and bank notes issued by the Bank of Canada make up the vast majority of money in Canada\u2019s economy. In 2008, the Bitcoin whitepaper<\/a> set out the technical principles  underlying the world\u2019s first peer-to-peer electronic currency, kicking off the development of so-called \u201ccryptocurrencies.\u201d<\/a> At the same time, increased use of digital payment methods (accelerated by the pandemic) spurred the declining use of cash and the acceleration of today\u2019s finance transformation.<\/a><\/p>\n\n\n\n

Central banks now find themselves pulled into the fray, compelled to maintain control of monetary systems spawning new alternatives, yet aware of potential harm to financial institutions and consumers if intervention goes wrong. Facebook\u2019s 2019 announcement of plans for a new digital currency, Libra, increased central bank concerns about the impact all of this might have\u2014if scaled up to critical mass through the reach of big tech\u2014on the role and responsibilities of financial institutions, and of themselves. \u201cCentral bank digital currencies\u201d, or CBDCs, are now on the table as a possible response, with research projects and pilots emerging in China and around the world. <\/p>\n\n\n\n

In a recent paper, the Bank for International Settlements (BIS) defined a CBDC as \u201ca digital payment instrument, denominated in the national unit of account, that is a direct liability of the central bank.\u201d Both \u201cwholesale\u201d (customers access CBDCs via financial institutions) and \u201cretail\u201d (customers access CBDCs directly with the central bank) delivery mechanisms have been considered by policymakers, but the retail version is the one most often discussed publicly.<\/p>\n\n\n\n

Payments modernization and the rise of new forms of money<\/strong><\/p>\n\n\n\n

With payments modernization<\/a> on the rise, new forms of money are taking shape. Like any new technology, these new forms of money aren\u2019t immediately and comprehensively replacing older forms \u2014 but instead function alongside them in the economy as alternatives with attributes that differentiate them.  A few examples include  their physical or digital nature, who issued them, how their value is determined, and the level of transaction privacy they may offer. Here is a comparative look at the four primary categories of money currently in use, and how CBDCs may compare with them.<\/p>\n\n\n\n

\"A<\/figure>\n\n\n\n

While some observers point to risks that may impact financial institutions and their customers, proponents of CBDC have identified opportunities which they think justify further exploration of the concept.<\/p>\n\n\n\n

CBDC principles<\/strong><\/p>\n\n\n\n

Central banks have well-defined mandates, and in light of these, the BIS has proposed a set of \u201cfoundational principles\u201d that should guide the development and implementation of CBDCs.<\/p>\n\n\n\n