Central Bank Digital
Currency andStablecoins
June 2021© Bank of Canada 2021. All rights reserved.

What is a Digital Currency?
❖Cryptocurrency: an instrument or token based on
cryptography that is generally intended to be used as acurrency for making purchases❖Cryptoasset/Security Token: an instrument or token
based on cryptography that is intended to be an asset or
security and not for use as a money to buy goods andservices❖Cryptoutility/Utility Token: an instrument or token basedon cryptography that is used to support the functioning ofan online platform.
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Bitcoin Price▪

Updated: May 27, 2021 | Source: coinmarketcap.com
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Market Capitalization of Global Crypto▪

Updated: May 27, 2021 | Source: coinmarketcap.com & coin.dance
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Actively Traded Cryptocurrencies▪

Updated: May 27, 2021 | Source: coinmarketcap.com
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Cryptocurrency Volatility▪

Updated: May 27, 2021 | Source: coinmarketcap.com & Federal Reserve Economic Data (FRED)
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Potential Implications of Cryptocurrencies❖Could erode the effectiveness of monetary policy andLender of Last Resort policy❖Could facilitate money laundering and terrorist financing❖Reduce market integrity❖Poor consumer and investor protection❖Not compliant with securities legislation❖Removes need for other payment intermediaries

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Stablecoins© Bank of Canada 2020. All rights reserved.

What is a Stablecoin?
❖ Stablecoins: type of cryptocurrency which use a stabilization
mechanism to attain price stability❖ A stablecoin arrangement refers to a range of functions and therelated activities to provide an instrument that is meant to be used
as a means of payment and/or store of value– Functions: governance, issuance, transfer, redemption,
stabilization, and interactions with users– Activities: setting rules, minting/burning coins, custody/trust,
operating infrastructure, trading, and market making❖ Stablecoins can be classified in multiple regulatory categories❖E.g., Currency, deposit, e-money, payment instrument, FMI,
collective investment scheme, security, commodity, derivative,
unregulated classConfidential - For Discussion Only9Components of a Stablecoin Arrangement
Stablecoin
Arrangement

Coin Attributes

RelatedTransfer System

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Financial Services

10Stabilization Mechanism❖ Stablecoins can be classified in four different types
depending on their price stabilization mechanism

Fiat-collateralized
Ex: Tether (USDT) – 1 USDT isbacked by 1 USD in reserves

Commodity-collateralized
Ex: Digix Gold (DGX) – 1 DGX isbacked by 1g of gold in reserves

crypto-collateralized
Ex: Dai (DAI) – While Dai ispegged to the USD, the collateralin reserves in comprised ofcryptocurrencies

non-collateralized
Stablecoins whose pricestabilization rely on algorithms
that adjust the supply

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Stablecoin Market Capitalization▪

Updated: May 27, 2021 | Source: coinmarketcap.com
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Normalized Prices: Bitcoin and Tether▪

Normalized to May 1, 2020. Updated: May 27, 2021 | Source: coinmarketcap.com
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CBDC

© Bank of Canada 2020. All rights reserved.

What is CBDC?
❖ Central Bank payment liability❖ Denominated in national unit of account: CAD❖ Electronic❖ Retail or wholesale❖ Token or account based

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Building a Modern Ecosystem

Payments
Modernization

Bank notes

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Open Banking

Real Time Rail

CBDC ??

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Retail CBDC Potential Benefits❖ Keeps central bank money competitive with private alternatives❖ Maintains general public access to risk-free asset❖ Enhances resilience of payment system❖ Next step in efficiency and security for cash issuance❖ Supports confidence and trust in financial system❖ Central bank only institution to credibly guarantee universal access:anyone, anytime, anywhere❖ Can maintain access to payments privacy❖ Support monetary sovereignty

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Retail CBDC Potential Costs or Risks❖ Risk of substituting for retail bank deposits❖ Risk of run toward CBDC during a crisis❖ Cybercrime❖ Money laundering and illicit activity

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Current Perspectives❖ Not a compelling case to issue a retail CBDC at this time

❖ Canadians will continue to be well-served by the existing payment
ecosystem, provided it is modernized and remains fit for purpose

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Wholesale CBDC
❖ Would a wholesale tokenized CBDC improve settlement efficiency
of financial asset transactions?

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