Central Bank Digital Currency (CBDC): How Will It Work in Canada?

Central bank digital currency (CBDC) is an alternative to paper and coin currency issued by a country’s central bank. The Bank of Canada is considering how to implement CBDC.

Asian woman using phone on the street to send money.

In Canada, central bank digital currency (CBDC) will be a digital version of traditional currency issued by the Bank of Canada.

While the CBDC is still in the exploratory stage, it’s worth understanding how the CBDC in Canada will likely redefine our relationship with money.

What is CBDC Canada?

A CBDC is a digital currency issued by a country’s official central bank. In Canada, a CBDC would be issued by the Bank of Canada. A Canadian CBDC would be a digital version of Canadian paper notes and coins. It would provide the same value and benefits as cash.

Is a central bank digital currency the same as cryptocurrency?

No, a CBDC and cryptocurrency are two distinct things. Cryptocurrency is a private digital currency and a volatile asset. Its value fluctuates based on supply and demand. In addition, cryptocurrencies often have transaction fees and aren’t regulated by any central bank.

If a digital Canadian dollar were established, it would be backed by the government of Canada and regulated by the Bank. Since the value of a Canadian CBDC would be the same as a regular Canadian dollar, there will be no risk of drastic changes in value.

How CBDC will be issued and regulated in Canada

The Bank of Canada will issue and regulate the CBDC in Canada to ensure it’s safe and accessible for everyone. As more Canadians adopt cashless payments, the Bank is gearing up for a future where digital currencies become more common.

Note, the Bank of Canada maintains that it will not eliminate cash after a CBDC is adopted in Canada. It will continue to issue bank notes and coins.

Does CBDC exist in Canada yet?

CBDC does not currently exist in Canada. The Bank of Canada first launched public consultations on a Canadian digital currency in May 2023. Over 85,000 Canadians participated in the conversation by providing feedback of their needs and expectations.

If there’s any traction, it may be a few years before the Canadian digital currency comes to fruition.

Why CBDC is being discussed now

As Canada’s central bank, the Bank of Canada needs to stay on top of consumer trends from around the world. For instance, during the COVID-19 pandemic, the Bank observed a shift in the way businesses and consumers conducted their transactions. Many people moved to contactless payments like the debit and credit card tap technology. This accelerated the Bank of Canada’s decision to consider creating a digital currency as an alternative to ensure that Canadians have an opportunity to take part in the global economy of the future.

Additionally, if cash were to ever lose its wide acceptance, the Bank of Canada would need to have a digital currency in place. It may also consider establishing a centralized low-cost, stable and accessible banking system with a digital transaction network that allows everyone to participate in the marketplace.

When will Canada create a CBDC?

The Bank of Canada has announced that it’s exploring the idea of issuing a digital currency and is considering the insights from public consultations on what features could be included in a CBDC. Similar to other central banks worldwide, the Bank is studying the viability of a digital currency in Canada.

Pros and cons of CBDC in Canada

Even though CBDC in Canada is in the research stage, it’s worth looking at the pros and cons to see how it could affect consumers.

Pros of CBDC in Canada

Safety: As a government-issued digital currency, CBDC will be protected just like cash.
Stability: Unlike cryptocurrencies, a CBDC would not fluctuate based on consumer supply and demand. The value of a CBDC in Canada would be the same as the Canadian dollar.
Accessibility: The Bank of Canada’s goal is to make a CBDC in Canada available to all, which would mean including people who don’t have bank accounts and only use cash.

Cons of CBDC in Canada

Privacy concerns: If all your transactions are digital, there’s potential for increased surveillance of your spending, which could present privacy concerns.
Cost and complexity: Setting up a digital currency in Canada could be difficult and expensive. In addition, consumers would need a digital device to make transactions.
Vulnerability: Even though CBDCs are meant to be a safe form of payment, they may be vulnerable to hacking attempts.

Central bank digital currencies (CBDCs) are a digital version of the country’s standard currency. Typically, the value of these digital currencies are the same as the country’s regular, or fiat, currency, such as Canadian dollars. A few countries have already introduced official CBDCs, and many others are researching their viability.

Yes, it’s possible to invest in central bank digital currencies. However, only a handful of countries have CBDCs in place, so you’ll have limited options. That said, since CBDCs have the same value as the country’s fiat currency, it may be easier to invest in individual currencies through the current foreign exchange market.