The central bank of Canada has called Central Bank Digital Currencies (CBDC) risky in a report published recently. The Bank of Canada thinks that a central bank digital currency may pose risks to users.
A Report by the Bank of Canada
The Bank of Canada has published a report entitled “Security and Convenience of a Central Bank Digital Currency” on October 5, 2020. In this report, the central bank has discussed the advantages and risks of using a central bank digital currency (CBDC). According to the Bank of Canada, there are some concerns about centralized digital currencies as they may pose some potential risks to users, i.e. some security risks.
Canada’s bank says in the report that these potentials risks arise from “how balances are aggregated and stored, how CBDC is used for transactions, and how various solutions such as e-wallets, crypto exchanges and banks compete to attract users.”
These potential risks are related to asset storage and other data security issues. The report noted that in the world of digital currencies, users use unknown wallet addresses for aggregating their balances which cannot be done using cash. As a result, a ‘trade-off’ occurs between convenience and security as per the report. The bank asserted that these risks related to security and asset storage need to be addressed and mitigated. A suggestion was also provided by the bank in the report stating how central banks can lower these risks.
Furthermore, the Bank of Canada stated that it would have developed a token-based Central Bank Digital Currency if it were looking for introducing its own digital currency. The reason behind developing token-based central bank digital currencies is that for their security private keys are used which ensure complete safety. Adding more to it, the bank said that banks should need to consider the usage of CBDCs and how they can be aggregated. In this way, according to the Bank of Canada, they can ensure the safety of central bank digital currencies and can use them as a means of payment.
Recently, a report was published by the Deutsche Bank regarding the effects of central bank digital currencies on governments, individuals, financial institutions, and central banks. DB’s report also outlined some major advantages as well as disadvantages of central bank digital currencies.