Author: Scott Hendry

Senior Special Director, Financial Technologies, Bank of Canada

Towards a Digital Canadian Dollar: If, How, When

In 1935, the Bank of Canada was entrusted by our federal government to centralize the production of bank notes. As Canada’s newly established central bank, one of our first orders of business was to issue a single currency for the country and eventually phase out the myriad of dollar-denominated notes issued by various banks and levels of government.
Towards a Digital Canadian Dollar: If, How, When

(©Bank Kanady)

Many decades later, our methods of payment have evolved from paper bank notes to include electronic transfers and point-of-sale purchases, and experiments in currency digitalization. With this rapid modernization in how Canadians pay for goods and services, the Bank is researching whether, when and how Canada should issue a Central Bank Digital Currency (CBDC)—the next iteration of a standard, stable, national method of payment.

This work is perfectly in balance with our corporate values: think ahead, inspire confidence and include everyone. With these in mind, let’s look at Canada’s CBDC journey.

Think ahead

At the outset, it is important to make one point very clear: the Bank doesn’t envision the devolution or outright disappearance of physical bank notes any time soon—if at all in our lifetimes. Even though we’re seeing a steady decline in the use of cash, it’s still the preferred method of payment for many people. And certain populations—like marginalized individuals and remote communities—heavily rely on cash in their day-to-day lives.

But it’s been apparent for many years now that, with technology modernizing so many other aspects of our lives, the physical nature of currency may also need to evolve to meet the changing demands of businesses and consumers. Recognizing this, the Bank started looking at the digitalization of money a decade ago to prepare for a day when the Government of Canada may take a decision to issue a CBDC.

Up until last year, the Bank’s main research was truly about “thinking ahead.” We considered hypotheticals like what a future digital currency might look like, and where that responsibility should lie.

Regarding who should take responsibility for a future CBDC, Deputy Governor Timothy Lane was unequivocal in laying out the Bank’s findings in a 2021 speech.

“Currency is a core part of the Bank’s mandate, and the integrity of our currency is a public good that all Canadians benefit from,” DG Lane said. “Only a central bank can guarantee complete safety and universal access, and with public interest—not profits—as the top priority.”

The Bank also considered what conditions may prompt a decision to issue a CBDC. We imagined a scenario where a decline in cash to the point where merchants start refusing to accept cash, and banks scale back their cash processing. We also considered the need for a CBDC if private cryptocurrencies—such as Bitcoin and stablecoins—or a digital currency of another country became popular. There may be other scenarios that could also support the issuance of a CBDC, including growing the digital economy through providing a digital currency to underpin such ideas as smart contracts, programmable money and the Internet of Things.

As you can see, the Bank has been diligently thinking ahead. We have anticipated future challenges and changes like the disappearance of cash. And we are preparing so we can be proactive—not reactive—in supporting the growth of the digital economy and the desires of the Canadian public. This is an important part of building and maintaining the confidence of those we serve as a trusted institution.

Inspire confidence

From this initial thinking, our research has advanced. While we do not see a need now to issue a CBDC, we are preparing for a day when the Government of Canada may give us the green light to launch a viable CBDC that Canadians could use with confidence. And we have established some key features of a CBDC, namely: safety, universal accessibility, privacy, resilience, and competition and efficiency.

Beyond some of the positive features any CBDC should have, we also need to consider any risks or challenges presented by a digital form of money.

One of these risks is the possibility of disintermediation of the banking sector whereby excessive funds are moved out of financial institutions to be held in CBDC. This could reduce private sector access to a large and stable form of funding that has served them well during crises of the past.

Another possible risk is whether a CBDC would create conditions for a faster or larger bank run, should one occur during volatile financial times. Given Canada’s stable financial system, this is unlikely. But as lender of last resort, the Bank would need to be prepared to act if a financial institution or the entire system was at risk.

We also have to look at the effects of a CBDC on the Bank’s balance sheet. Releasing a digital version of cash—in addition to the physical bank notes in circulation—could trigger an increase on the liabilities side of our balance sheet, requiring a similar increase on the assets side. We must also prepare for the possibility that a CBDC could lead to greater volatility in our balance sheet.

Beyond these considerations, we are making a concerted effort to start communicating our CBDC journey with Canadians. Because the key to our success on any policy front is clearly explaining our efforts and our intentions behind them.

“In a nutshell, we need to spend more effort speaking and listening to the citizens we serve,” said Governor Tiff Macklem in an August 2020 speech. “Diversifying our engagement improves our capacity to make better policy decisions and enhances our legitimacy as public institutions. That is more important now than ever as we grapple with COVID‑19 and its harsh economic consequences, which affect everyone.”

Include everyone

Our outreach on CBDC is part of a larger effort within the Bank of Canada to reach out across the country and talk more with the people we serve. We want to hear unique perspectives from coast to coast to coast about issues that affect their financial well-being.

On the CBDC file, our stakeholder outreach is well underway. We are focusing on three main objectives:

  • raising greater awareness and understanding of the Bank’s work towards a potential CBDC;
  • ensuring our stakeholders’ views about the drivers for a CBDC and its design features are taken into consideration as our work advances; and
  • learning from the people we serve what positive social benefits they would look for in a CBDC.

Because at the end of the day, we don’t truly know whether a critical mass of our population would want to use a central bank digital currency when cash, debit and credit cards, and electronic transfers are readily available and easy to use. It’s important we clearly identify—and communicate—the potential benefits to end users, versus the alternatives already at hand.

Where to from here

A CBDC is by no means a foregone conclusion. But we must prepare for the day when we will take that next step in the evolution of payments in Canada.

And in doing so, we will continue to build on the long-standing trust we have established in promoting Canada’s economic and financial welfare. And our work will be guided by our core promises to always think ahead, inspire confidence and include everyone.


Scott Hendry


The article is published in a series of articles in Obserwator Finansowy written by governors of central banks and distinguished economists. The series is under the special patronage of the Governor of Narodowy Bank Polski, Professor Adam Glapiński. The authors of the articles have agreed to waive their fees for writing the texts, and in exchange NBP shall donate the amount equivalent to the fees onto the account of the National Bank of Ukraine in order to support the NBU during the war. Below is a foreword by the Governor of NBP to the whole series:


On 24 February a huge tragedy occurred, in the face of which it is impossible to simply move on as if nothing had happened.

Nobody can remain indifferent to the misfortune that has befallen the Ukrainian nation.

All of us are shocked by the press reports, and particularly by what we see in the mass media.

Fighting Ukraine is not only its brave soldiers, but also an army of thousands of civilians trying to preserve normality in a country stricken by Russian aggression.

This army includes the staff of the National Bank of Ukraine, with whom NBP is in constant contact.

Aware of our Ukrainian colleagues’ needs, we have invited several central bank governors and eminent economists to share their knowledge on the economic processes taking place around the world.

It is rare for such a distinguished group of authors to feature in Obserwator Finansowy, which is published by NBP. It is also worth underlining that all the authors have waived the fees for their articles in order to donate them to meet the needs of our colleagues working in the National Bank of Ukraine.

I believe that you will find the series of these articles interesting, especially since they not only share the knowledge and experience of their authors, but also express goodwill towards the war-afflicted NBU.

Prof. Adam Glapiński, Governor of NBP

(©Bank Kanady)

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