To start the consultation, the Canadian government cited its worries about the potential threats that digital assets and the digitalization of money may bring to its financial system. According to its new mini-budget, the Canadian federal government will soon begin a consultation on cryptocurrencies, stablecoins, and central bank digital currencies (CBDCs).
In addition to its annual budget, the government’s “2022 Fall Economic Statement,” which was presented on Nov. 3 by Deputy Prime Minister Chrystia Freeland, serves as a financial update.
Digitization Poses a risk
The government’s plans for cryptocurrencies were described in a brief portion of the announcement titled “Addressing the Digitalization of Money.” The country’s financial system legislation needs to keep pace with the way cryptocurrencies and money digitization are transforming financial systems in Canada and throughout the world, according to the report.
According to the statement, the digitization of money poses a risk to democratic institutions across the world, noting the use of cryptocurrencies for domestic and international money laundering and the circumvention of sanctions.
In the announcement, the government said that stakeholder discussions on digital currencies, stablecoins, and CBDCs will begin on Nov. 3. However, it is yet unclear which stakeholders would be involved.
The government’s intention to launch a “financial sector legislative review focused on the digitalization of money and maintaining financial sector stability and security” was part of the 2022 budget, which was released on April 7. The consultations that have been announced are believed to be a part of that intention.
To cease fueling cryptocurrency miners, Quebec’s energy management will need government clearance.
The COVID-19 vaccination mandate and limits in Canada sparked demonstrations in January, with participants turning to cryptocurrency fundraising platforms after being barred from rival fiat fundraising platforms.
Due to the demonstrators’ blockades of its roads, the province of Ontario proclaimed a state of emergency on February 11 as a result of which its government has frozen millions in donations to the protestors; at the time, the protestors had amassed about 21 Bitcoin.
Invoking the Emergencies Act on February 14 gave Prime Minister Justin Trudeau the authority to freeze protestors’ bank accounts and keep an eye on large and suspicious transactions, including cryptocurrency.
Two days later, the federal police of Canada demanded in writing to various cryptocurrency exchanges that they cease processing transactions for more than 30 unique crypto wallet addresses connected to the current protests.
Consequences of CBDCs
Despite many countries looking into the adoption of CBDCs Fabio Panetta believes there are consequences. The member of the ECB’s Executive Board spoke on the international implications of central bank digital currencies (CBDCs), specifically whether and under what circumstances it would be feasible to utilize the digital euro. He claims that there hasn’t been much research done on the global scope of CBDCs.
This perspective is extremely important because design decisions are best taken when the ramifications are thoroughly understood and the issuance and design of CBDCs involve a comprehensive assessment of the trade-offs between risks and opportunities.
The scholarly literature has previously noted several negative effects of making CBDCs available to non-residents. According to him the ultimate CBDC design, such as the inclusion of payment and quantity limitations (caps), has a significant impact on the severity of these consequences.