Does central bank digital currency already exist in Canada?

Central banks and governments around the world are looking into the potential benefits and implications of introducing a digital form of fiat currency at the retail level.

It could be argued that 'wholesale' central bank digital currency in Canada has been around since the Bank of Canada was established in 1935. It was at this time that Canada's reserves framework was instituted, and the existing 'physical' reserves of the chartered banks (large denomination Dominion notes and gold held in vaults) were effectively digitized, becoming a liability entry on the Bank of Canada's balance sheet. While Canada's reserves system was phased out in the early 1990s, direct participants in Canada's large value payments system still settle in central bank money, but only the delta from where they started the day (always reset to 0) and where they ended up at the end of the day in terms of net payments sent/received.

Routine market operations conducted by the Bank of Canada (such as overnight lending or borrowing to influence the target for the overnight rate) and balance sheet management transactions (such as term repos) are also conducted in central bank digital currency.

Other examples of Canadian CBDC

Examples of CBDC in Canada can be observed by reviewing the Bank of Canada's balance sheet. As a shortcut - this article sums up the institutions who have accounts at the central bank, and thus could be described at having access to central bank money for certain purposes (Table 1, p.38).

The list includes the Government of Canada (the Bank of Canada is the fiscal agent of the Government), financial market infrastructures (FMIs), foreign central banks, and a Crown corporation.

According to the article, deposit accounts for FMIs are related to the financial stability function of the Bank of Canada. The CPSS-IOSCO Principles for Financial Market Infrastructures are referenced here, and which state that an FMI should “conduct its money settlements in central bank money where practical and available, to avoid credit and liquidity risks".

Deposit accounts are offered to foreign central banks (generally for their foreign reserves portfolio) to eliminate banker risk and in the context of fostering reciprocal relationships with peers.

Finally, CDIC has a bank account with the Bank of Canada to "eliminate banker risk and support the stability of the Canadian financial system". Holding an account with the Bank of Canada, rather than a commercial bank, avoids a circumstance where CDIC - the organization tasked with insuring retail deposits in the event of a bank failure - was holding the insurance funds at the failed bank.

What about retail CBDC?

Open a savings account with a commercial bank, leave it dormant for ten years, and remain "unreachable" by your bank during this time. Congratulations, you now (kind of) own central bank digital currency.

The Bank of Canada's Unclaimed Balances service (which started in 1944) receives balances fitting these criteria once a year, acting as custodian on behalf of the account owners, and even paying interest for ten years following the transfer of the account (provided the account was earning interest prior to its transfer). And balances of $1,000 or more are held for 100 years.

According to the Bank of Canada website, at the end of 2018 there were around 2 million unclaimed balances outstanding, worth $816 million, and the Bank of Canada paid out $11 million to balance holders that year.