April’s election handed the Liberals a minority government win and confirmed Mark Carney’s role as Canada’s new Prime Minister. Historically, Mr. Carney has criticized cryptocurrencies like Bitcoin for their volatility and instead expressed support for a Central Bank Digital Currency (CBDC). Over the last ten years, blockchain’s distributed ledger technology (DLT) has been evolving, yet regulatory guidelines remain unclear. Some critics believe the slow pace reflects concerns about competition from private sector cryptocurrencies.
A Canadian CBDC, sometimes referred to as a digital Canadian dollar or digital Loonie, would be issued by a central bank and backed by the country (in the case of Canada, the Bank of Canada). Unlike physical cash, it could be programmed for specific use cases.
Today, you can use Canadian dollars freely across the nation. Skeptics of CBDCs worry a cashless society could introduce limitations, fearing restrictions on purchases or capped spending amounts, and raise privacy concerns because they could involve tracking and storing transaction data. Some global discussions surround the potential for limited geographical boundaries, though Canada hasn’t proposed this. Physical Canadian dollars have no government-imposed domestic spending limits, but large cash or digital currency transactions may trigger anti-money laundering reporting requirements.
One reason some countries are exploring digital money is to ensure their own currency remains dominant, rather than losing ground to private or foreign digital coins like Bitcoin. CBDCs could help central banks maintain relevance in an evolving digital financial system.
Although blockchain was not discussed in the Liberal or any other major party platform, the Bank of Canada has continued exploring CBDC plans through research collaborations. Parliament would need to support any future implementation, as public and political consensus is required.
In his book Values, published in 2021, the Prime Minister draws on his experience over a twelve-year tenure serving as a key G7 financial figure, in both Canada and the United Kingdom, respectively. He presents solutions to what he sees as current crises so that he may help in building an inclusive economy that works for everyone. Spoiler alert, this economy includes support for centralized digital currencies.
From 2017 to 2019, Project Jasper tested blockchain for interbank and cross-border payments. In 2019, the Bank of Canada (BOC) and partners released a whitepaper on DLT’s potential. By 2020, the BOC joined a global CBDC research group and supported ISO 20022 adoption to modernize payments and improve interoperability.
Public opinion on the use of a central bank digital currency remains mixed. In 2023, the Conservative Party launched a petition calling for an end to its research. The initiative reflected concerns about government involvement in digital currency and a preference for private-sector solutions.
In 2024, the BOC shared they were shifting focus to payments although this would also be an important foundation layer for CBDCs. It’s worth noting that the BOC mentioned this in their report writing that two-sided payment market work will “help the Bank estimate the likelihood of adoption of a CBDC.”
Bitcoin is a digital asset that doesn’t come from a central authority. Instead, it was created by an individual or perhaps a group that has chosen to remain anonymous and used the pseudonym Satoshi Nakamoto. Like regular money, Bitcoin can be divided into smaller units called satoshis. But unlike traditional currency, there's a hard limit: only 21 million will ever exist.
You can trade Bitcoin on peer-to-peer networks, often known as decentralized exchanges (DEXs), or on regulated trading platforms and centralized exchanges (CEXs). It can be volatile and is not suitable for all investors. While Canada’s regulators have taken a more active approach, some other countries were slower to accept cryptocurrency. Their rules are still catching up as digital economies continue to evolve.
Blockchains were first marketed as a way for people to restore trust in centralized systems that had lost the trust of many. Since decentralized ledgers are public, privacy posed a barrier to implementing CBDCs. ZK proofs offer a solution. These smart contract-driven protocols enable one party, the prover, to substantiate the truth to another party, the verifier, without divulging any additional confidential information beyond the fact that they possess such knowledge.
Achieving zero knowledge hinges on three critical factors: completeness, soundness, and the ability to verify without exposing one’s full knowledge. This framework offers substantial benefits to individuals, corporations, and governments. It allows institutions to verify private data without sharing the granular details of individual transactions.
Quantum computing threats, cybersecurity risks, and maintaining user privacy are the primary concerns research groups have discussed. Like other cryptocurrencies, CBDCs could be vulnerable to hackers. Balancing innovation with individual freedom and achieving national consent remain key obstacles. This type of currency may challenge the freedom and economic sovereignty early blockchain adopters created digital ledger technology for. While CBDCs could shape Canada’s financial future, public input and our consensus, or lack thereof, is crucial.
To learn more about the evolving role of digital finance in Canada, visit our blog.
