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Published September 20, 2023
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Is a Central Bank Digital Currency Coming for Canadians?

The Canadian loonie could be getting a major makeover. Here's what the Bank of Canada's plan for digital currency means for you.

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A digital form of the Canadian dollar would revolutionize the country’s economic landscape. But would it be for the better? Here’s what to know about the Bank of Canada’s vision for a digital loonie.  

What is a central bank digital currency? 

A central bank digital currency (CBDC) is a digital currency issued and regulated by a country’s central bank. In Canada, a CBDC would be issued by the Bank of Canada. Like cash, it would be the liability of the Bank. 

“In an ideal world, it is truly digital,” says Henry Kim, Professor of Operations Management and Information Systems at the Schulich School of Business, York University located in Toronto. “It acts just like cash. But it’s digital, which means it’s convenient, and it transcends distances.”

CBDC vs. cryptocurrency

You’d be forgiven for categorizing a CBDC as cryptocurrency. Digital money is digital money, right? But there are significant characteristics that separate CBDCs from crypto.

“A central bank digital currency is legal tender,” says Kim. “It is real money. Cryptocurrency, for the most part, is proxy money.”

Cryptocurrency is a private and unregulated digital asset prone to price volatility. As a digital version of cash, CBDCs must be stable and reliable with tangible, real-world value. This can be accomplished through central bank regulation. 

“Cryptocurrency, like Bitcoin, is not backed,” says Andreas Park, professor of finance at the University of Toronto. “They’re basically worth whatever people are willing to pay for them.”

A Canadian CBDC would be regulated by the Bank of Canada, backed by government debt and tied to the Canadian dollar.

Does Canada need a central bank digital currency?

Canada doesn’t need a CBDC right now. But that could change.

Kim points out that Canada may need to institute a digital dollar to stay competitive in global financial markets. 

“If other parts of the world actually start using CBDCs, then there’s a chance that people will start transacting with something other than Canadian dollars,” says Kim. 

U.S. think tank Atlantic Council reports that 130 countries are in various stages of exploring digital versions of their currencies[1]. The European Central Bank is investigating a digital euro, for instance. China’s pilot test of the digital yuan has been underway since 2019.  

What’s more, the public’s interest in cash as a payment method is waning. Many Canadians have come to rely on the convenience of credit cards and Interac e-Transfers. And transactions can even be made with mobile devices now, like phones and smart watches.  

Automated banking machine transactions in Canada reflect this shift, declining from 880 million in 2008 to 466 million in 2019, according to Payments Canada’s 2020 Canadian Payment Methods and Trends Report[2]

Still, a decline in ATM transactions doesn’t mean the country will do away with cash completely.  

“For a number of reasons, people use cash,” says Park. It performs a unique job in the Canadian financial landscape: It’s free to use, anonymous, stable and safe. 

It’s just that in an increasingly digital world, Canadians need a suitable alternative. That’s where CBDCs come into play.

Where is the Bank of Canada in its decision-making process?

As of this writing, the Bank of Canada has stated that it doesn’t see the immediate need for a digital dollar. But it also says that Canada needs to put measures in place to launch a CBDC if it becomes a necessity in the future[3].

The Bank of Canada maintains that a digital dollar would not replace cash and that it would continue to supply physical money as long as Canadians want to use it. 

A CBDC poses privacy and security risks

While a CBDC would help Canada stay globally competitive and adapt to an increasingly cashless world, the technology isn’t risk-free. Experts have already voiced some concerns — chief among them: security.

“This needs to be absolutely bulletproof,” says Park. “And nothing in the tech space ever is bulletproof. There will be ways to hack these wallets.” 

Money laundering is a related issue, says Kim. “If, at the press of a button, you can launder tens of millions of dollars very easily, that’s a big concern.”  

Kim explains that a central bank digital currency could be made more secure if Canadians were required to provide identification to use the currency. Though this brings up another major concern for CBDCs: one of privacy.

“I don’t want a random civil servant to be able to see what I spend my money on,” says Park. “What if this data about my spending is used in a way which harms me as an individual?”

It’s a valid argument. And one that should be addressed as part of the evolving conversation on digital currencies.  

To what extent Canadian CBDC transactions would be visible to the Bank of Canada remains to be seen. If Canadians are troubled by the transparency of their personal finance data, Kim suggests they consider the amount of information they share with tech companies to use mobile apps and services.

“There’s no design that allows you to use digital cash purely anonymously,” says Kim. “The amount of privacy we would give up with a CBDC in Canada is not much more than what we already give to Visa or Apple or PayPal.”

The future of a Canadian CBDC

The digital loonie is still far from reality, but its creation seems increasingly inevitable. What’s a concerned Canadian to do? Get involved. Citizens can help shape the future of the country’s CBDC by participating in consultations and contacting public officials to voice any concerns.

Article Sources

Works Cited
  1. Atlantic Council, “Central Bank Digital Currency Tracker,” accessed September 20, 2023.
  2. Payments Canada, “Canadian Payment Methods and Trends 2020 Report,” accessed September 20, 2023.
  3. Bank of Canada, “Digital Canadian dollar,” accessed September 20, 2023.


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