Bank of Canada testing digital fiat dollar

Bank of Canada headquarters in Ottawa, Ontario.

The Bank of Canada, along with Payments Canada and the Royal Bank of Canada (RBC), said they have been testing a digital fiat currency known as CAD-COIN, reported Forbes.

The parties revealed the development in a panel discussion at the Payments Panorama conference this week in Calgary, Alberta.

The session was closed to the media, but Kyle Kemper, executive director of the Bitcoin Alliance of Canada, shared a photograph via Twitter of a slide demonstrating how CAD-COIN works.

According to the slide, the system is called “The Jasper Distributed Ledger Settlement Platform.”

The cycle of the platform is as follows:

• Participants pledge T1 cash collateral into a special pooled account held by Bank of Canada (BoC), the country’s central bank;
• BoC converts cash collateral to generate CAD-COIN;
• BoC transfers CAD-COIN to fund participants’ accounts;
• Identifiable, trusted counterparties exchange assets on the CAD-COIN platform;
• Participants redeem CAD-COIN for T1 cash collateral; and
• BoC destroys redeemed CAD-COIN

The slide also lists the following design assumptions:

• Network participants (FIs) each set up a digital currency account as part of a CAD-COIN asset registry
• The CAD-COIN asset registry is owned by the BoC; the digital funds belong to the FI
• BoC issues depository receipts, not tokens
• The CAD-COIN-shared ledger reflects real-time accurate account balances for each digital currency account
• All network participants are trusted and authorized to perform transactions

Bank of Canada Senior Deputy Governor Carolyn Wilkins

Sources stressed to Forbes the BoC and Payments Canada do not currently have plans to issue a digital fiat currency. They told the magazine that Carolyn Wilkins, the central bank’s senior deputy governor, will disclose more details about the experiment in a speech tomorrow at Payments Panorama.

According to sources, the experiment includes participation from Canada’s “big five” banks: RBC, Toronto-Dominion Bank, Scotiabank, Bank of Montreal, and the Canadian Imperial Bank of Commerce.

Forbes reported the experiment is being conducted by financial innovation firm R3 CEV, whose members include each of those banks. Kemper told the magazine the panelists demonstrated the use of CAD-COIN, showing how funds can be transferred using Ethereum.

“The central bank is really innovating here, but it’s innovating in cahoots with the largest banks in Canada first as a project but ultimately this can be the CAD-COIN,” Kemper said, noting this was the first step in the “blockchain-ification” of banks.

Image credits:

Photo of Bank of Canada’s headquarters – Taxiarchos228 at the German language Wikipedia  (CC BY-SA 3.0)

Photo of Carolyn Wilkins – Her profile on Bank of Canada’s website