The Bank of Canada recently released a report on the risks and benefits of a central bank digital currency.
“The Central Bank of Canada digital currency (CBDC) based on anonymous tokens will pose a particular security risk,” the Bank of Canada wrote in its October 5 report. “These risks arise from how funds are collected and stored, how CBDC uses transactions and how different solutions such as e-wallets, cryptocurrency exchanges, and banks compete for user acquisition.”
Over the past year or so, discussions have intensified, and many governments have begun to digitize their currencies in the form of the CBC currency. China has repeatedly mentioned the digital yuan, the digital currency of the central bank.
The Bank of Canada report lists risks in many areas, including property custody. In the world of digital assets, token holders can create a large number of wallets by distributing their money according to different shares between these wallets. This results in more storage space for assets than is possible in a traditional economy.
Risks also arise from platforms that potentially provide solutions for CBD. In response, possible solutions include restrictions on the built-in wallet storage of the CBDC, in addition to the respective platform parameters, which have been established by the respective central bank.
“If the Bank of Canada issues a digital currency to the central bank, it is likely to be token-based,” the report said, referring to the safe, albeit clumsy, use of a private key in the equation. “To ensure that the central bank’s digital currency is a safe and effective method of payment, the bank must think carefully about how the central bank’s digital currency will be collected and used, and the external factors it will have.”
The report explains the advantages and disadvantages of personal portfolios and vaults versus the ability to centrally store assets as exchanges, mentions risks and other measures associated with a potential CBDC currency, as well as potential rules and guidelines for this asset class.
Europe also recently released the CBDC news as the European Central Bank showed interest in this type of asset.