BoC’s Lane: private sector plays major role in making digital CAD flourish

A digital currency sanctioned by the Bank of Canada would likely come in a basic format and rely on private sector innovation to add capabilities, the central bank official overseeing research into a potential digital Canadian dollar told a U.K. cryptocurrency conference on Tuesday.

BoC Deputy Governor Timothy Lane shared his thinking on central bank digital currencies (CBDCs) during a panel discussion at the FT Live Crypto and Digital Asset Summit held by the Financial Times. CBDCs are digital currencies issued by a central bank rather than commercial company and have been the subject of study around the world.


“Most of those are not going to come from the basic design of the CBDC,” he added. “They’re going to come from the various other companies that are going to find ways of using it in their transactions.”

While some have suggested borrowing and lending and real estate transactions as potential uses for smart contracts, Lane said it is difficult to predict what form such innovations could take and that central banks would not be the best place to develop them.

“Central banks’ involvement might well be creating something that is basically digital fiat, but then it would be for the private sector to innovate and figure out ways of using it and incorporating it in smart contracts,” Lane said, referring to the self-executing contracts that can facilitate direct peer-to-peer transactions on blockchain networks.

“The central bank would still be issuing the CBDC and it would still be a liability to the central bank, but all a lot of those uses and sort of how it would be brought to the public … would inevitably involve a high degree of private sector development and collaboration,” he said.

During the event, Lane also emphasized the importance of privacy considerations when developing a digital dollar, and of maintaining public trust in the central bank.

“An absolutely key thing would have to be to make sure that (the CBDC) offers a degree of privacy which is acceptable to the public and so that it’s not being used as a method of surveillance,” Lane said. “And the public can have the confidence that their transactions are not going to be used against them in some sense.”

On exception would be transactions tied to criminal activity. He said the bank would still require a mechanism for tracking such uses in the digital space.

The Bank of Canada has been assessing the possibility of bringing a CBDC to market amid the rise in popularity of cryptocurrencies. Lane had previously raised concerns about the risk that private players could gain a significant foothold in the currency market, which led some industry experts to suggest the Bank might be forced to launch a digital currency to compete with private money.