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Bank of Canada’s Senior Economist Believes Central Bank Cryptocurrency Could Benefit Economy

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S. Mohammad R. Davoodalhosseini, the Bank of Canada’s Senior Economist, has published a report entitled “Central Bank Digital Currency (CBDC) and Monetary Policy” which explains that introducing a cryptocurrency issued by the Central Bank could result in economic gains.

Potential Benefits of CBDC

Davoodalhosseini used both cash and CBDC in his report to explain that if the two co-existed, then the results would be unfavorable for society.

Having both cash and CBDC available to agents sometimes results in lower welfare than in cases where only cash or only CBDC is available. This fact suggests that removing cash from circulation may be a welfare-enhancing policy if the motivation to introduce CBDC is to improve monetary policy effectiveness.

Davoodalhosseini further added that CBDC can be used in Central Bank-issued debit card systems.

The welfare gains of introducing CBDC are estimated as up to 0.64% for Canada.

Davoodalhosseini concluded his report by stating that even though CBDC promises to solve many problems, it still needs to be explored.

Cryptocurrency Regulations in Canada

On July 23rd, the Bank of Canada published the Bitcoin Omnibus Survey (BTCOS) which showed that 58% of Canadians hold Bitcoin for investment purposes. The study was conducted in December 2017; a time when Bitcoin’s price was breaking records.

The study was also conducted in November and December 2016, when the majority of Bitcoin owners claimed that they used  cryptocurrency for transactional purposes.

Canada, like other countries, has been observing cryptocurrencies closely. Last month, the Canadian government published a draft explaining new regulations for cryptocurrency exchanges. According to the rules, exchanges must report large transactions and implement Know Your Customer (KYC) policies on those accounts.

These regulations will help Canada combat terrorist and money laundering activities while allowing blockchain and cryptocurrency-related companies to grow. Such developments prove that Canada is one of the most crypto-friendly countries in the world.

Image Credit: Deposit Photos

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