Bank of Canada Puts CBDC Development on Ice: Is This Indicative of Global CBDC Demise?

While 134 countries and currency unions, representing 98 per cent of global GDP, are currently exploring a central bank digital currency (CBDC), the Bank of Canada has revealed it is officially putting efforts to introduce a digital version of the Canadian dollar on pause.

Since 2020, interest in CBDC potential across the globe has skyrocketed. In May 2020, only 35 countries were exploring the idea of a CBDC at all. Less than five years later, 66 countries are now in the advanced phase of exploration – development, pilot, or launch.

Despite this, the Bank of Canada revealed it is “scaling down its work on a retail CBDC”, favouring a focus on broader payments system research and policy development. After engaging in significant research into the benefits and challenges of a Canadian digital dollar, the central bank has clearly not seen enough evidence to suggest it needs to seriously ramp up, or even continue, the development of one.

“The Bank of Canada’s decision to scale back its efforts on a CBDC likely reflects a mix of economic, technological, and strategic factors,” explains Bryan Daugherty, global public policy director at Switzerland-based global industry organisation that works to advance business on the BSV blockchain BSV Association. “Economically, Canada’s well-established financial ecosystem, which includes highly efficient digital payment systems, may have diminished the immediate need for a CBDC.

“Implementing such a system would come with significant costs, and with uncertain public interest at this stage, it’s understandable why now may not be the most favourable time. Taking a step back provides the Bank of Canada with an opportunity to closely assess emerging technologies and solutions, allowing for a more informed decision when conditions are more favourable.”

Despite its decision to pause CBDC development, the central bank isn’t totally turning its back on the idea, leaving the door ajar for a decision to change its stance sometime in the future.

Could a CBDC still be in Canada’s future?

Alessandro Hatami, managing partner of Pacemakers.io

But what would spark such a U-turn? According to Alessandro Hatami, managing partner of Pacemakers.io, a consultancy specialising in digital transformation in finance, all it would take is CBDC success elsewhere.

“Should other countries (namely the EU and USA) proceed with their CBDC projects, Canada will almost certainly reactivate its programme, because it will be hard to justify not offering their citizens the benefits of a good CBDC. These include faster and cheaper payments domestically and internationally, transactions that are more secure and reliable, and enabling financial inclusion for the unbanked and underbanked.”

Given the level of uncertainty about various CBDCs across the globe, it’s difficult to predict whether we even see more launched. If we do, it seems unlikely they become hugely successful amongst consumers unless countries use significant incentives to encourage the adoption of each digital currency.

Andrew Carrier, member of the executive committee at Quant

Andrew Carrier, member of the executive committee at Quant, also adds: “While Canada may be putting the digital dollar on ice for now, that doesn’t mean they’ve abandoned it completely. Meanwhile, other countries are pushing ahead – places like the UK are still exploring a digital pound, and regions like Hong Kong and Singapore are already deep into trials.

“While a CBDC certainly offers benefits, it’s important to remember that each country will move at its own pace. A key factor is whether the public is actually ready to adopt something like this – there’s always some hesitation with new forms of money, and we saw the same thing when bank cards were first introduced.”

Falling behind other countries

While it may be true that Canada is awaiting the results of CBDC tests and launches in other major markets before it pulls the trigger on its own, it may also risk falling behind in fintech innovation compared to countries actively rolling out digital currencies.

“Sadly Canada is not as innovative in fintech as it is in other areas such as the AI space,” adds Hatami. “Not offering a national CBDC will further impact the country’s ability to be seen as an innovative fintech hub.”

Bryan Daugherty, global public policy director at BSV Association

However, for Daugherty, the Bank of Canada’s decision tp hold back could still prove fruitful: “While some may view this cautious approach as a risk of falling behind in fintech innovation, it also positions Canada to benefit from the lessons learned by other countries that are further along in their CBDC experiments.

“By observing the challenges and successes of early adopters, Canada can refine its strategy and ensure that when – and if – it implements a digital currency, the approach is both robust and future-proof. Countries that manage to harness scalable blockchain solutions, capable of processing millions of transactions quickly and securely, will ultimately have an edge in the successful deployment of a CBDC.”

Is this telling of CBDC decisions elsewhere?

However, as we ponder whether Canada risks falling behind, it may also be the case that it is ahead of the curve here. Despite significant CBDC exploration worldwide in the last five years alone, one major question remains: what use cases demand a CBDC?

So far, the truth is, there is still no concrete answer to this. All the while CBDCs don’t appear to solve any issues, or promise new innovations, consumers are right to be sceptical about why anyone would use them.

Stuart Connolly, CIO at Deus X Capital

“The truth is that people don’t really want CBDCs,” says Stuart Connolly, CIO at investment and operating company Deus X Capital. He explains that concerns about freedom and privacy are still rife when it comes to CBDCs. “They have been roundly rejected by the business and crypto communities, and privacy advocates have campaigned against them because they are best suited to authoritarian economies where transparency can infringe upon freedoms and the creation of money and wealth are heavily controlled. Ultimately, there are few benefits to CBDCs and they simply aren’t compelling.”

However, not all industry participants believe all CBDCs are doomed to fail. Alessandro Hatami adds: “It is unlikely that this move will deter other markets from pursuing their CBDC path. China’s eYuan has grown four-fold since 2024.

“The digital Pound (britcoin) is likely to be revived despite Tory objections. The Japanese eYen is also in progress. Many believe that the first economy to launch a well-designed CBDC will replace the US Dollar as global trade currency.”

Only time will tell whether Canada’s decision to pause CBDC development, for however long, is the right one, but, as it stands, a lot needs to change before they have a transformative impact anywhere.

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