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Tuesday, October 3, 2023

Bank of Canada’s Digital Currency: A Democratic Disaster in the Making?

In anticipation of a possible requirement from the Canadian government, the Bank of Canada is taking proactive steps to prepare for the issuance of a digital version of the Canadian dollar. Although the central bank is leading the initiative to develop this new currency, the ultimate decision to proceed lies with the Canadian Parliament and government.

As part of the process, the Bank of Canada recently concluded a public consultation on June 19. During this consultation, the bank sought valuable input from Canadians regarding the potential implementation of a national digital currency. The outcome of this consultation will contribute to shaping the future of the digital dollar.

Should the Bank of Canada proceed with the issuance of a digital dollar, it has the potential to significantly impact how Canada addresses forthcoming financial challenges. However, it is crucial not to overlook the democratic concerns associated with the introduction of such a currency. Safeguarding our democracy and maintaining trust in the Bank of Canada and the new digital dollar necessitate addressing these concerns before any decision to issue this form of currency is finalized.

The implications of a national digital currency are profound, both in terms of financial innovation and democratic considerations. As Canada explores the possibilities and weighs the potential benefits, it is essential to approach this development with careful thoughtfulness and transparency, ensuring that the concerns of citizens and democratic principles are thoroughly addressed throughout the decision-making process.

Mitigating financial risks

The digital Canadian dollar serves as a crucial measure to address two potential future threats: the widespread adoption of external currencies and the looming possibility of another financial crisis.

Currently, the majority of digital money in our economy is created by commercial banks through loans, which can pose risks during bank runs. These runs occur when individuals simultaneously withdraw their funds, leaving commercial banks vulnerable to insolvency. By introducing a currency backed by the central bank, a more secure alternative to commercial bank money can be provided, enhancing stability in the financial system.

Furthermore, the introduction of the digital Canadian dollar can help mitigate the risk of mass adoption of alternative digital currencies, such as cryptocurrencies and privately issued currencies. Such a scenario would undermine the Bank of Canada’s ability to effectively control the country’s monetary policy. By proactively introducing a digital Canadian dollar, the country can safeguard its monetary sovereignty and maintain control over its financial system.

In summary, the digital Canadian dollar is a vital step in ensuring stability, mitigating risks, and preserving monetary sovereignty in the face of potential threats posed by external currencies and future financial crises. By adopting a forward-thinking approach, Canada can protect its economy and maintain control over its monetary policies.

A promise for a better future

The digital Canadian dollar represents a transformative opportunity to shape a more promising future by embracing the boundless potential of the digital realm.

As an alternative to traditional payment methods, the digital Canadian dollar would seamlessly integrate with electronic payments and other innovative aspects of the digital economy, offering enhanced convenience and accessibility.

Furthermore, the traceability of digital transactions could contribute to a safer society by aiding in the detection and prevention of money laundering, crime, and terrorism, fostering greater security and trust.

In envisioning the potential of central bank digital currencies, it becomes feasible to incorporate social policies directly into the digital money itself. This could involve targeted interest rates to promote economic equity, automatic subsidies for essential goods and services for disadvantaged households or senior citizens, and even facilitating automated tax collection through collaboration with the Canada Revenue Agency.

The Bank of Canada building is pictured in Ottawa on Tuesday, Dec. 6, 2022. THE CANADIAN PRESS/Sean Kilpatrick

Additionally, when combined with the ongoing advancements in artificial intelligence, the digital Canadian dollar holds the promise of harnessing valuable insights from the vast amounts of data generated, further driving innovation and progress.

The digital Canadian dollar is not merely a transactional tool but a gateway to a future where technology, finance, and social welfare converge, fostering economic inclusivity, efficiency, and intelligence.

The dark side of the digital dollar

While the implementation of a digital Canadian dollar holds potential benefits, it is crucial to consider the risks it may pose to our democracy. One significant concern is the potential for a future government to gain excessive control over our financial data, undermining privacy and individual freedoms.

The programmable nature of digital currencies raises the possibility of the government exerting control over individual economic activities. This level of monitoring and restriction could infringe upon citizens’ rights and enable the identification and targeting of political dissidents.

Past instances of the Canadian government employing financial tools against protestors raise valid concerns about the potential misuse of a centralized digital currency. Moreover, centralized digital infrastructures are vulnerable to software updates that may compromise initial safeguards, amplifying the risks.

While the Bank of Canada’s consultation is a positive step, it is essential to address the potential for increased government authority in the digital domain. Transparent discussions and robust safeguards must be in place to protect democratic values before deciding to proceed with a central bank digital currency.

Mitigating concerns and building trust

The discussion surrounding a national digital currency must include considerations of democratic concerns, as seen in other regions like the European Union and the United States. Privacy, surveillance, and the protection of civil liberties are crucial aspects to address.

Launching the digital Canadian dollar is not solely a technological decision but a political one. To build trust in the digital currency and the Bank of Canada, it is vital to address and alleviate these concerns. Responsibility should guide the decision-making process for issuing the digital Canadian dollar.

Raising awareness about potential misuse and evaluating the impact on Canadian democracy is of utmost importance. Safeguards must be integrated into the digital Canadian dollar framework, surpassing the current suggestions. Urgent discussions are necessary to determine the appropriate safeguards and ensure a responsible implementation.

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