Researchers from Canada’s central bank argue that private digital currencies like bitcoin won’t succeed in the long-term without some kind of government involvement.
A paper published this week by researchers at the Bank of Canada examines the viability of digital currency, looking to past examples of Canadian currency – public “Dominion” notes and private bank notes from the 19th-to-20th centuries – as a guide.
The report’s release follows work within the Canadian central bank on a prototype system for issuing a central bank-backed digital currency. Dubbed Project Jasper, the initiative saw the Bank of Canada explore building a payments system using the tech, but signs indicate that further work is needed before it might one day reach commercial scale.
While unrelated directly to the Project Jasper work, the research paper offers a window into the thinking among the central bank’s researchers on the topic of digital currencies. Among the bank’s assertions: bitcoin and other private digital currencies may flourish, yet they will need government support to keep consumers safe.
The report’s authors stated:
“We conclude that well designed and managed private digital currencies could circulate widely but only with appropriate government regulation to ensure their safety, soundness, and uniformity.”
Bank of Canada has previously voiced their concerns about digital currency, saying in November 2015 that the popularity of digital currency could lessen the effectiveness of monetary policy.
The Bank of Canada concludes that lessons learned from monetary history should be applied when determining the effect that competing public and private currencies will have. Notably, the paper also suggests that central bank-backed digital currencies aren’t guaranteed to crowd out private options like bitcoin.
“A central bank can always get its digital currency into circulation, but its digital currency will not necessarily drive out existing private digital currencies,” the authors wrote.
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