The Bank of Canada is considering the merits of establishing a digital currency as interest in cryptocurrencies like bitcoin reaches a fevered pitch.
In a research paper released by the central bank Thursday, report authors Walter Engert and Ben Fung said there are merits to creating a central bank digital currency as society starts to move away from cash, and the bank's potential to reap profits off issuing that cash could be threatened.
The report said a central bank digital currency (CBDC) could become a cheaper alternative to debit and credit cards and other forms of payment, making it easier for competition to emerge in the retail and large-value payment sectors.
"With no transaction fees charged by the central bank, the benchmark CBDC would probably be less expensive for merchants than cash and credit cards."
Some of the benefits overlap with those of bitcoin, ether and the myriad of other digital currencies based on cryptography that have emerged, though one of the central benefits of bitcoin and the like is that it is decentralized and not controlled by any bank.
The value of bitcoin, the most well-known cryptocurrency, has skyrocketed this year, rising from about US$1,000 per coin at the start of the year to crest at over US$11,000 per coin this week.
The interest has led to many new entrants into the sector and a few stumbles in the rush to get in on the rising valuations.
Toronto-based blockchain investor NextBlock Global said in early November that it had suspended its initial public offering after allegations that it made misleading statements in its marketing materials.
The report Thursday said given the complexity and uncertainty around introducing a central bank digital currency, central banks should proceed cautiously and incrementally.
In March, the bank released a report that said the decentralized technology that supports the digital currencies didn't yet match the net benefits of the existing centralized system for clearing transactions, and that the added complexity of the proposed system could lead to added complexity and operational risk.
The report, however, noted that cost-savings are potential sector-wide, and that developers continue to advance the system.