Interdisciplinary team helping to build the framework of research needed to support centralized digital cash
Central banks around the globe are taking a close look at crypto currencies as they ponder the future of money in an increasingly digital world.
Crypto currencies – from Bitcoin or Ethereum to Facebook’s plans to launch a digital currency – have attracted attention because of the possibility of direct payment across the world without using intermediaries. Cryptocurrencies, however, are risky as their values fluctuates daily. They are also not bound by banking rules and regulations and so attract illegal and black market activities.
Central banks around the world, including the Bank of Canada, are now studying the technical, practical and business implications of launching their own Central Bank Digital Currency (CBDC), which could offer some of the benefits of crypto currencies with less risk to its users. And while there has been no decision about issuing a centralized Canadian digital currency, the Bank of Canada is getting ready should Canada one day decide it needs one.
Last year, the Bank of Canada invited over 20 top North American universities to participate in a new research competition called Model X, which challenged leading experts to propose a design for a Canadian CBDC. Teams from across North America responded with initial drafts of how a central bank digital currency could potentially work.
In mid-February 2021, the Bank of Canada announced the three teams selected to complete their proposals and share those proposals for public review. The teams are from the University of Calgary, McGill University and University of Toronto/York University, and all received project fees to fund their work.
Five main design goals were outlined by the Bank of Canada: security and anonymity, inclusivity with access even for areas not well-serviced by banks or internet, robustness and resistance to failure, compliance with Canadian laws and obligations and scalablity to potentially handle a large number of transactions daily and payments from small to large.
Many other central banks around the world are exploring the idea of a central bank digital currency. China completed a trial of a digital Yuan in September 2020 and it is expected that other countries will implement a digital currency in the next few years. The requirements of the Bank of Canada are unique with a focus on the, sometimes competing, values of privacy, accessibility and prevention of money-laundering.
“The Bank of Canada had ambitious and detailed design goals that required a team to have both the business acumen and digital privacy and security expertise to understand the implications of a CBDC, know what is and is not possible and why that’s the case,” says Ryan Henry, assistant professor, Department of Computer Science. “And our biggest strength as a UCalgary team is that we have both areas of strength and that’s why I believe we were one of the three universities chosen to tackle this pressing and timely question.”