Canada’s central bank recently put out a report on the risks and benefits of a central bank digital currency in an October 5 report.
The report pointed to security risks that a CBDC would bring about. Canada’s top bank wrote;
“An anonymous token-based central bank digital currency (CBDC) would pose particular security risks. These risks arise from how balances are aggregated and stored, how CBDC is used for transactions, and how various solutions such as e-wallets, crypto exchanges and banks compete to attract users.”
CBDC Boom over the past year
Over the past year, several governments have explored and embraced the idea of digitizing their currencies. Various governments have begun digitizing their currencies in the form of a CBDC. China has made major strides in that regard and its digital Yuan has been one of the most talked about digital currencies.
CBDC risks according to the Bank of Canada
Despite many central banks making the move towards CBDCs, the bank of Canada has listed some risks with digitizing currencies. The bank highlighted two major risks with digitizing national currencies.
Asset storage risk
The digital nature of the new currencies according to the bank of Canada could open the door to a huge number of wallets being created. Token holders who create the wallets would spread their assets, spreading their funds in different allotments across those wallets.
Third party platforms
Risks also arise from the platforms potentially providing solutions around CBDCs. The possible involvement of third parties in storage and other ways of control is also a concern for Canada’s top bank.
“If the Bank of Canada were to issue a CBDC, it would likely be token-based,” the report said, noting the presence of secure, albeit clunky, private-key use in the equation. “To ensure that CBDC is a safe and efficient means of payment, the Bank needs to carefully consider how CBDC will be aggregated and used, and what externalities will arise from it.”
The report went into detail exploring the pros and cons of third parties being involved versus the traditional centralized system. It also went into possible rules and guidelines around such an asset class.
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