The Bank of Canada has presented a technical framework to explore the feasibility of a retail-focused digital Canadian dollar. The model developed in collaboration with MIT emphasizes privacy and transaction speed.
Focus on Privacy
One of the key aspects of the proposal is the impact of digital currencies on privacy. Unlike cash, which remains anonymous, CBDCs might allow governments to monitor financial activities, sparking global debates. In response, the proposed system strives to separate personal identity information from transaction data, allowing unregistered users to hold funds in their digital wallets without sharing identity data, while registered users benefit from a similar level of privacy that prevents the central bank from accessing their identity or transaction history.
Bitcoin-Like Infrastructure
Another innovation of the proposed model is the storage of user funds using a structure similar to Bitcoin’s unspent transaction outputs (UTXO), instead of traditional bank accounts. Operations in the system occur through a dual-step process: updating a central ledger and transferring funds between user wallets. This design facilitates real-time transaction completion while preventing banks and public institutions from viewing transaction details.
Technical and Infrastructural Challenges
The proposed digital Canadian dollar architecture endeavors to balance operational resilience, user privacy, and institutional control requirements. However, substantial technical advancements may be necessary to integrate with existing retail payment infrastructures. Particularly, technological updates may be required for point-of-sale systems in stores to accommodate digital cash-like transfers. Despite theoretical scalability, potential performance drops during auditing and system restoration processes warrant continued engineering efforts.
The study clarifies that while a robust technical foundation is established, there is no current commitment from the Bank of Canada to launch a digital Canadian dollar. Nevertheless, the model demonstrates the technical feasibility of alternative digital payment systems that prioritize user privacy.
