Will they or won't they? Central banks eye each other's digital currency moves

Canada's central bank recognizes that CBDCs are a necessarily international issue.

Canada doesn’t want any "surprises" regarding central bank digital currencies. In a recent interview with Reuters, Bank of Canada Governor Tiff Macklem doubled down on the country's contingency-plan approach to CBDCs, stressing that he sees no urgent need to issue one right now. 

For Macklem, inter-state competition and coordination remains the key question when it comes to CBDC issuance. He told reporters:

“If another country has one and we don’t, that could certainly create some problems. So we want to make sure we’re ready. Currencies move across borders, and so we certainly wouldn’t want to be surprised by some other country."

To that end, Macklem said Canada is working with its G7 partners to ensure that information, planning, and possible CBDC timelines are shared. 

The country has had a collaborative CBDC research project, Project Jasper, underway since 2017, which focused on wholesale applications for central bank digital money. Jasper notably involved experiments with distributed ledger technologies through public-private cooperation, engaging the likes of R3, Accenture, J.P. Morgan Chase, the Monetary Authority of Singapore and the Bank of England.

Canada has recently been seeking to recruit talent for the potential development of a CBDC, signaling its interest in working with candidates who have an in-depth knowledge of existing private cryptocurrencies and their underlying technologies. Indeed, aside from other central banks seizing the initiative, the Bank of Canada also sees private sector stablecoins, like Libra, as a potential trigger that would justify getting the ball rolling with CBDC issuance.

In this view, Canada aligns with the Eurozone and the United States in their aggressive stance towards Facebook's digital currency ambitions.

By far the most ambitious and momentous move in the CBDC landscape is China's digital yuan, which has already been piloted in major cities and key economic regions. While this has certainly sparked talk of a geopolitcally-charged CBDC race, some countries remain skeptical that the first mover will necessarily have an advantage. 

Dmitry Peskov, a special representative of the President of the Russian Federation on digital and technological development, has recently argued that the financial risks of CBDC issuance are so great that it may be more advantageous to wait on the sidelines and learn from others' experiences with implementation.

U.S. Fed chair Jerome Powell agrees, stressing that it's "more important for the United States to get it right than it is to be first” and rush to issue a digital dollar.

Indeed, having made significant progress with digital currency development and pilots, China now appears to be playing catch-up on the legislative and regulatory front. The People's Bank of China released a draft law for public consultation last week that seeks, among other safeguards, to enshrine the digital yuan's primacy over potential third-party competitors.

On the supranational front, the Bank of International Settlements is coordinating with the central bank of Canada — alongside those of the United Kingdom, Japan, European Union, Sweden and Switzerland — to thoroughly assess CBDCs from a technical, regulatory and institutional standpoint.

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