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The Bank of Canada said that any digital currency it might issue in the coming years would not pay interest or require users to disclose private information to access the payment system.

The choice of whether to launch a digital form of the Canadian dollar rests with the federal government. But the BoC has begun laying the groundwork for a central-bank digital currency (CBDC) in case Ottawa asks it to move ahead with a digital version of cash.

On Wednesday, the bank published a report spelling out its clearest vision to date of what a potential CBDC might look like, based on consultations with financial institutions, civil-society groups and the public.

“Our responsibility is to ensure the Canadian payments system is ready for the economy of the future,” senior deputy governor Carolyn Rogers said in a statement. “The way people pay for things and use money is changing. If Canadians decide a digital dollar is necessary, our obligation is to be ready.”

In response to concerns about privacy, the bank said it is examining options for a potential CBDC system that “would not require Canadians to have identification, a bank account or to disclose private information to anyone to perform basic financial transactions – similar to bank notes and some prepaid cards.” It would allow Canadians to “voluntarily” provide identification to help retrieve lost or stolen funds.

The bank also said that potential CBDCs would not pay interest – a nod to concerns from private-sector banks and credit unions.

Financial institutions are worried that customers could pull money out of their bank accounts and keep their savings as digital dollars, undercutting bank funding and increasing financial-stability risks. If central-bank digital cash doesn’t pay interest, there may be less of an incentive to hold funds outside the traditional banking system.

The Bank of Canada suggested that any CBDC would be built upon the existing financial system.

“We will focus our efforts on exploring a model where the bank would issue a digital dollar and provide the payment network. Financial institutions and other regulated entities such as payment service providers would handle all consumer- and merchant-related activities,” the bank said.

“This largely reflects the model used for bank notes: the bank issues bank notes and entrusts the direct relationship with consumers and merchants to the financial sector.”

The Canadian Bankers Association (CBA) said in a statement that it does not believe CBDCs are necessary. Almost all adult Canadians already have access to digital payments through their private bank accounts, the association said.

“If the decision were to be made to issue a retail CBDC, we agree with the Bank of Canada that it should not earn interest and that end users should maintain relationships with their existing financial-services providers,” the CBA said.

The idea that central banks should issue their own digital money has emerged in recent years in response to a steady decline of physical cash transactions, as well as the development of cryptocurrencies and digital money backed by large technology companies.

Eleven countries, mostly small Caribbean states, have launched CBDCs, according to the Atlantic Council, a U.S. think tank. Another 21 have begun pilot projects, including India, China, Australia and Sweden.

In Canada, the idea has been met with public skepticism and pushback from opposition politicians. Conservative Party Leader Pierre Poilievre, an advocate of private cryptocurrencies, has said he would not introduce a CBDC if his party forms government.

In May and June, the Bank of Canada received nearly 90,000 responses to an online questionnaire about CBDCs. The feedback was overwhelmingly negative, with 85 per cent of respondents saying they would not use a digital Canadian dollar.

The bank did note that this was “not representative” of the Canadian population; people with strong feelings about CBDCs may have been more likely to respond to the questionnaire.

Respondents to the survey said they were concerned about the privacy of digital money, compared with the anonymity of cash, as well as cyberattacks and government control over their bank accounts.

“Canadians have a right to privacy, and any digital dollar must not compromise this right,” the bank said. “The potential design of a digital dollar would require an evaluation of the desired balance between maintaining privacy and preventing financial crimes. Deciding how to balance these objectives will be up to Parliament.”

Whatever happens with CBDCs, the bank will continue to offer physical dollar bills. And it is exploring technology that could allow a potential CBDC to be used offline.

Whether CBDCs are actually needed in Canada remains to be seen. A report by Bank of Canada researchers, published in August, found that most Canadians have sufficient access to payment systems and that this “would probably continue to be the case in a cashless environment.”

The researchers argued that widespread adoption of CBDCs could be a challenge without “significant and sustained investment by the central bank.” Individuals would be unlikely to use CBDCs unless merchants accepted them, and merchants would have little incentive to accept CBDCs unless most people used them, the researchers said.

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