Central Bank Digital Currency (CBDC): Retail Considerations

Payments Canada has published Central Bank Digital Currency (CBDC): Retail Considerations, the latest in a series of educational papers on CBDC. This paper explores the design considerations for implementation of a retail CBDC in the Canadian payments environment. A retail CBDC is aimed to take on traditional attributes of physical cash and would be used by consumers and businesses (relative to wholesale CBDC, which would be used by financial institutions).

The concept of central bank digital currencies (CBDC) has been a topic in the payments ecosystem for some time1 for interbank payments as well as everyday transactions. 

Around the world, large banks settle daily obligations through adjustments to digital accounts they hold at central banks.2 However, interest in CBDC has accelerated in recent years, fueled partly by the substitution of banknotes for private electronic payments in general-purpose payments. The rise of alternative, non-sovereign and borderless digital currencies, such as Bitcoin and Diem (formerly Libra) - and, perhaps more importantly, their underlying distributed ledger technology for exchanging and recording token-based payments - has also driven consideration of a CBDC. Central banks are also re-exploring interbank “wholesale” payments to evaluate the potential of tokens and distributed ledger technology for settlement of securities and other assets.

This interest seemingly reached a tipping point in 2020, and has been accelerated even further by the COVID-19 pandemic and the ensuing migration to digital payments. In fact, a recent Bank for International Settlements (BIS) paper indicates that, “...a full 80% of surveyed central banks are engaging in research, experimentation or development of CBDCs.” Canada is no exception; in January 2020, the Bank of Canada, along with five other central banks and BIS, announced the creation of a working group to share experiences and knowledge as CBDC implementation is considered.3

To support these efforts, Payments Canada’s Central Bank Digital Currency (CBDC) series aims to provide an understanding of a potential CBDC issuance in the Canadian context along with an exploration of the potential economic and social implications. These papers will provide a base of understanding for furthering the discussion around CBDC in Canada and its impacts on key players in the payments industry and end users.

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Payments Canada’s CBDC Series

Introduction The FundamentalsRetail CBDC Global Developments 

Wholesale CBDC Global Developments

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