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Central Bank of Canada: State-Backed Cryptocurrency a Possibility

The Bank of Canada (BoC) has released an exploration paper detailing the ramifications the institution would face in creating a state-backed cryptocurrency.

Signaling in the  least the BoC’s interest in the natively enabled possibilities of the crypto space, the paper specifically “addresses the question of whether a central bank should issue digital currency that could be used by the general public.”

The conclusion? Maybe.

One of the main concerns the BoC researchers highlighted is the potential extinction of seigniorage after the implementation of a state-backed cryptocurrency. Seigniorage, of course, is the profit made from the “exchange of bank notes.”

Obviously, then, a state-backed crypto in Canada (or elsewhere) would presumably decimate banks’ seigniorage profits because such a crypto would largely — or totally — mitigate the need for transacting in paper notes in the first place.

The BoC’s suggested counter to make up for this potential extinction? Making the state-backed crypto of Canada fee-less for users.

To this end, and at its best, the hypothetical Canadian state crypto would compete with Bitcoin and other payment channels thanks to its fee-less model. And that point, the cryptocoin could become popular — and valuable — enough to offset the loss of seigniorage:

“[With] no transaction fees charged by the central bank, the benchmark [cryptocurrency] would probably be less expensive for merchants than cash and credit cards.”

If this interest does end up materializing into a real project, then Canada would join the likes of Russia with its “cryptoruble” and Dubai with its “emCoin.”

For now, the verdict’s still out.

Many crypto enthusiasts — such as rumored Satoshi Nick Szabo — think state-backed cryptocurrencies are nothing short of any oxymoron.

We’ll have to wait and see if the whole “nationalization” of cryptos turns out feasible or unfeasible.



TLDR: The Bank of Canada (BoC) is exploring what creating a state-backed cryptocurrency might look like, having just published a research paper on the topic. 

William M. Peaster is a cryptocurrency journalist and copy-editor based out of Pensacola, Florida. He’s an avid fan of Ethereum, ERC-20 tokens, and smart contracts in general.

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