By Leroy A. Brown

Canada is one of the many nations actively exploring the possibility of implementing a central bank digital currency (CBDC).

One of the reasons for researching central bank digital currency (CBDC) is that it may benefit the overall financial system.

However, there are disadvantages that must be considered as well.

Nevertheless, below are some of the activities conducted thus far by Canada’s central bank - the Bank of Canada (BoC).

Central Bank Digital Currency (CBDC) in Canada

The Bank of Canada has been actively exploring the possibility of a central bank digital currency (CBDC) since 2017.

Some of the activities conducted by the Bank of Canada (BoC) are:

1

Project Jasper

As part of the Bank of Canada’s work on digital currencies, the Canadian central bank delved into having a Canadian central bank digital currency (CBDC) and financial technology (fintech).

Project Jasper is a notable aspect of this study into digital money by the Bank of Canada (BoC).

Project Jasper was the first time a central bank had ever been part of a distributed ledger technology (DLT) experiment with private entities.

Project Jasper primarily involved testing the distributed ledger technology (DLT) for payment settlements.

PROJECT JASPER PHASE 1

In Phase 1, the ‘Project Jasper Primer’ document was published in January 2017.

This report gave an overview of Project Jasper.

By February 9, 2017, phase 1 of Project Jasper explored how a distributed ledger technology (DLT) could be used for payment settlements.

This was a collaboration between the Bank of Canada (BoC), Payments Canada, R3 Lab and Research Centre, TD Bank, Scotiabank, CIBC, HSBC Bank, the Bank of Montreal, the Royal Bank of Canada (RBC), and the National Bank.

PROJECT JASPER PHASE 2

Phase 2 of Project Jasper saw experimenting with an alternative distributed ledger technology (DLT) for payment settlements.

By May 25, 2017, public and private sectors were exploring the use of distributed ledger technology (DLT) for wholesale payments.

In June 2017, the report – ‘Project Jasper: Are Distributed Wholesale Payment Systems Feasible Yet?’ by James Chapman, Rodney Garratt, Scott Hendry, Andrew McCormack, and Wade McMahon was done.

The report discussed having wholesale payments executed using distributed ledger technology (DLT).

By September 29, 2017, a white paper was produced by R3, the Bank of Canada (BoC), and Payments Canada.

The white paper explained how distributed ledger technology (DLT) could be used for payment settlements.

PROJECT JASPER PHASE 3

Phase 3 of Project Jasper involved expanding the use of distributed ledger technology (DLT) for payment settlements and foreign exchange and securities settlements.

On October 22, 2018, the report - ‘Jasper Phase III: Securities Settlement Using Distributed Ledger Technology’ by Payments Canada, the TMX Group, the Bank of Canada (BoC), R3, and Accenture was published.

The report highlighted the findings of the third phase of Project Jasper.

PROJECT JASPER PHASE 4

Phase 4 of Project Jasper involved the Bank of Canada (BoC) partnering with the Bank of England and the Monetary Authority of Singapore to investigate the use of distributed ledger technology (DLT) for cross-border and international currency settlements.

This phase also included Canada’s Project Jasper and Singapore’s Project Ubin.

Singapore’s Project Ubin is a public and private sectors collaborative project that seeks to determine if and how well securities and payment settlements can be done using a distributed ledger technology (DLT) and blockchain.

Accenture and JP Morgan were participants in the experiment as well.

On November 15, 2018, the preliminary report - ‘Cross-Border Interbank Payments and Settlements: Emerging Opportunities for Digital Transformation’ prepared by the Bank of Canada, HSBC, the Monetary Authority of Singapore, the Bank of England (BoE), with inputs from the Toronto-Dominion Bank, KPMG, the Oversea-Chinese Banking Corporation, the United Overseas Bank, and Payments Canada.

This study showed how various models could handle setbacks and inefficiencies in cross-border payments and settlements.

By May 2, 2019, the report - ‘Jasper-Ubin Design Paper: Enabling Cross-Border High Value Transfer Using Distributed Ledger Technologies’ by the Bank of Canada, JP Morgan, the Monetary Authority of Singapore, and Accenture highlighted the results of the Project Jasper and Project Ubin experiment.

2

Contingency planning for a central bank digital currency

On February 25, 2020, the Bank of Canada had work done as background material in preparation for the changes in the monetary and payment systems.

This report was titled ‘Contingency planning for a central bank digital currency.’

Canada’s collaborative approach towards central bank digital currency (CBDC)

The Bank of Canada (BoC) has collaborated with other central banks - the Bank of England (BoE), the Bank of Japan (BOJ), the European Central Bank (ECB), the Sveriges Riksbank, the Board of Governors Federal Reserve System, and the Swiss National Bank, along with the Bank for International Settlements (BIS), to create a group that shares information about implementing central bank digital currencies (CBDCs) in their respective jurisdictions.

The group also partners with institutions such as the Financial Stability Board (FSB) and the Committee on Payments and Market Infrastructures (CPMI).

Thus far, the group has done the following:

1

Central bank digital currencies: foundational principles and core features

On October 9, 2020, the Bank of Canada was part of a multi-bank report titled ‘Central bank digital currencies: foundational principles and core features.'

The other banks involved in the report were the Bank of England (BoE), the Bank of Japan (BOJ), the European Central Bank (ECB), the Board of Governors Federal Reserve System, Sveriges Riksbank, the Swiss National Bank (SNB), and the Bank for International Settlements (BIS).

The report highlighted the following:

A

Central bank digital currency (CBDC) can coexist with cash and various types of money.

B

Central bank digital currency (CBDC) should not have a negative impact on economic and fiscal structures.

C

Central bank digital currency (CBDC) should enhance financial innovation and efficiency.

2

Multiple reports

On September 30, 2021, the group published the following reports:

~ The ‘Central bank digital currencies—executive summary’ 

~ The ‘System design and interoperability’

~  The ‘User needs and adoption’

~ The ‘Financial stability implications’

The report highlights the overall purpose of a central bank digital currency (CBDC) and the challenges that may follow.

Bank of Canada (BoC) other partnerships

1

Bank for International Settlements (BIS)

The Bank of Canada (BoC) has joined forces with the Bank for International Settlements (BIS) to have a BIS Innovation Hub centre located in Toronto to assist in developing financial technologies (fintech) and innovations for central banking.

2

Financial Stability Board (FSB), the Bank for International Settlements (BIS), and the International Monetary Fund (IMF)

To assist with managing the risks and benefits of implementing fintech and digital currencies internationally, the Bank of Canada (BoC) works with the Financial Stability Board (FSB), the Bank for International Settlements (BIS), and the International Monetary Fund (IMF).

3

Massachusetts Institute of Technology (MIT)

The collaboration between the Bank of Canada (BoC) and the Massachusetts Institute of Technology (MIT) is to explore how advanced technologies may impact central bank digital currencies (CBDCs).

4

Creative Destruction Lab (CDL)

The Bank of Canada (BoC) has a partnership agreement with the Creative Destruction Lab (CDL) that will allow the BoC to stay current on artificial intelligence (AI), quantum computing, machine learning, and crypto-asset technologies.

5

Blockchain Research Institute (BRI)

The Bank of Canada (BoC) is a founding Blockchain Research Institute (BRI) member.

The BRI is a global community of blockchain and digital transformation research professionals.

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