The Bank of Canada and Massachusetts Institute of Technology (MIT) have partnered on the launch of a 12-month research project looking at central bank digital currencies (CBDCs).
The campaign will research how technology can shape the usage and design of CBDCs.
The Bank of Canada will work with MIT’s Digital Currency Initiative department as part of a greater look into digital currencies and fintech.
The research will help understand the potential and the pitfalls of using a CBDC alongside normal fiat currencies.
The Bank of Canada stated on their website: “Understanding the benefits and risks of digital currencies and electronic payments is important. That’s because they could affect our core central bank functions.”
CBDCs have been researched by many countries around the world but have only been adopted in one country so far. Many countries, including Canada, regard digital currencies as the future of finance.
The Bank of Canada said: “We’re working on a number of projects to prepare for the future of money and payments. This work includes building the capability to issue a cash-like CBDC, which would be ready should the need ever arise.”
As the previous quote acknowledges, there are no plans by the Canadian government to adopt a CBDC but plans are being made in case they decide otherwise. One of the main reasons for the lack of CBDC adoption is due to risks and the lack of global regulatory framework.
The Bank of Canada has also stated they will provide an update on the research and will clarify their findings on the usefulness and necessity of CBDCs.
CBDCs have been growing in popularity because of the unique benefits of blockchain technology. The current archaic system adopted by many financial institutions is slow and difficult to audit.
Using blockchain technology, banks can finalize transactions in a fraction of the time with much less overhead. The lower overhead comes from the reduced need for third party adjudication and from the reduction of currency exchanges needed.
Many anticipate the roll out of CBDCs among major countries around the world. Some countries, like Japan, believe that CBDCs are the future of ecommerce and finance and to not develop the technology will quickly make their financial institutions outdated.