Bank of Canada: Central bank digital currency will not necessarily exclude Bitcoin, Bitcoin can be widely circulated

Researchers at the Bank of Canada believe that private digital currencies, such as Bitcoin, will not be successful in the long run without some type of government involvement.

This week, researchers at the Bank of Canada released a paper that explores the feasibility of digital currencies, using examples from Canada’s past — public ‘sovereign’ notes and private bank notes from the 19th and 20th centuries — as a guide.

The report comes as the Bank of Canada is working on a prototype system for issuing central bank digital currency. The project, called Jasper, aims to explore the creation of a payment system using digital currency technology, but there are signs that the system needs further research before it can be implemented on a commercial scale.

Although not directly linked to Project Jasper, the research paper provides a window into how central bank researchers are thinking about digital currencies, with the central bank asserting that bitcoin and other private digital currencies could flourish, though they will need government support to protect consumer safety.

The authors of the report stated:

“We conclude that well-designed and well-regulated private digital currencies can achieve widespread circulation, but only with appropriate government regulation to ensure their safety, soundness, and consistency.”

The Bank of Canada has previously expressed concerns about digital currencies. In November 2015, the central bank said that the popularity of digital currencies could reduce the effectiveness of the central bank's monetary policy.

The Bank of Canada concluded that lessons learned from monetary history should be applied when determining the impact of competitive public and private currencies. Notably, the report also suggests that central bank-backed digital currencies are not guaranteed to crowd out private digital currencies such as Bitcoin.

The report authors wrote:

“A central bank can always put its own digital currency into circulation, but this digital currency does not necessarily exclude existing digital currencies.”