The C.D. Howe Institute thinks the Bank of Canada should issue a digital currency that can be converted into cash.
In a new report, the think tank says Canadian-dollar-linked stablecoins could become attractive if they are convertible into cash issued by the Bank of Canada and are well designed and well regulated.
A stablecoin is a cryptocurrency that is linked to an underlying asset such as a fiat currency.
It believes a Bank of Canada digital currency should be issued in token form, with decentralized technology for settling transactions.
It says bank-issued digital Canadian dollars could also encourage the private sector to introduce Canadian-dollar-linked stablecoins by enabling convertibility to take place digitally without having to rely on physical banknotes.
The report’s authors add that stablecoin platforms could be given access to the Bank of Canada’s liquidity facilities and deposit insurance to mitigate the risk of runs.