BANK OF CANADA CALLS CENTRAL BANK DIGITAL CURRENCIES RISKY, ESPECIALLY STORAGE

Last updated: June 20, 2025, 11:26 | Written by: Brad Garlinghouse

The prospect of a Central Bank Digital Currency (CBDC) in Canada has been a topic of considerable debate and scrutiny. The interest of central banks in CBDC is considered to be an important step towards financial innovation that aims to improve efficiency and financial inclusion significantly (Choi et al, 2025, Allen et al, 2025, Cullen, 2025) that may arise from safe storage of value and low maintenance cost compared to physical currency (Murray, 2025, Didenko et al, 2025).While proponents tout potential benefits like increased financial inclusion and efficiency, the Bank of Canada itself has voiced significant concerns, particularly regarding the inherent risks associated with the storage and security of these digital assets.This article delves into the Bank of Canada's stance, exploring the potential pitfalls of CBDCs and their implications for the Canadian financial landscape.It examines the security vulnerabilities of token-based systems, the potential for financial instability, and the broader societal impact on privacy and accessibility.The recent decision by the Bank of Canada to put its CBDC project on hold highlights the complexity of the issue.This doesn't mean the idea is dead, but rather that a more cautious and comprehensive approach is needed.We'll discuss what this pause signifies for the future of banking, digital assets, and the very nature of money in Canada, paying close attention to the challenges outlined by the Bank of Canada and independent researchers alike.Are CBDCs inherently risky, or can these risks be mitigated? Central bank (CB) Digital Currencies, or CBDCs, are a novel form of digital central bank (CB) money that represent the culmination of state efforts to manage this digital transition. They are designed to provide attractive instruments for both wholesale and retail functions, as well as bolster CBs influence and control over the economyLet’s find out.

Understanding Central Bank Digital Currencies (CBDCs)

Before diving into the risks, it's essential to understand what a CBDC is and how it differs from existing forms of digital money.A CBDC is essentially a digital form of a nation's fiat currency, issued and backed by the central bank.Think of it as digital cash, directly representing the value of the Canadian dollar, but existing entirely in electronic form.Unlike cryptocurrencies like Bitcoin, which are decentralized and often volatile, a CBDC would be centralized and regulated by the Bank of Canada.This control is a key distinction, offering both potential benefits and potential drawbacks.

Retail CBDC, in particular, would be a digital version of physical cash available to the general public.It could be used for everyday transactions – buying groceries, paying bills, or sending money to friends – all through digital wallets or payment apps.This ease of use is one of the main drivers behind the exploration of CBDCs globally.

Motivations Behind CBDC Consideration

Several factors motivate central banks to consider issuing a digital currency:

Ensuring Adequate Central Bank Money: Maintaining the relevance of central bank money in an increasingly digital world.
Preserving Seigniorage Revenue: Capturing the revenue generated from issuing currency.
Promoting Financial Innovation: Fostering innovation in the payments landscape.
Improving Payment Efficiency: Streamlining payment processes and reducing transaction costs.
Enhancing Financial Inclusion: Providing access to financial services for underserved populations.
Combating Illicit Activities: Potentially reducing the use of cash in illegal activities.

The Bank of Canada's Concerns: Security and Storage Risks

Despite the potential benefits, the Bank of Canada has consistently emphasized the significant risks associated with CBDCs, particularly concerning security and storage. The Bank is conducting research related to a central bank digital currency (CBDC). This is part of its contingency planning to be ready to issue a CBDC in the future if the need were to arise. Research by Bank staff is produced independently from the Bank s Governing Council. It may therefore differ from official Bank views.Their research highlights vulnerabilities inherent in the design and implementation of such systems.

One of the major concerns revolves around anonymous token-based CBDCs. Canada s central bank, the Bank of Canada, recently put out a report on the risks and benefits of a central bank digital currency. An anonymous token-based central bank digital currency (CBDC) would pose particular security risks, the Bank of Canada wroteIn such a system, digital tokens representing value are transferred between users without necessarily revealing their identities. Bank of Canada calls central bank digital currencies risky, especially storageWhile this offers a degree of privacy, it also presents significant security risks.

Aggregation and Storage of Balances: The way balances are aggregated and stored in an anonymous system can create vulnerabilities to hacking and theft.
Transaction Security: Ensuring the integrity and authenticity of transactions in an anonymous environment is a complex challenge.
Money Laundering and Terrorist Financing: The anonymity afforded by token-based systems could be exploited for illicit activities.

The Bank of Canada's report specifically points out that these risks stem from how balances are managed, how CBDCs are used for transactions, and the overall architecture of the system. With Canada putting its CBDC project on hold but implying that it was prepared to resurface the concept in the future this article discusses how this will affect banking and digital assets in Canada. What is a Central Bank Digital Currency?Even with advanced cryptographic techniques, maintaining the security and integrity of a large-scale CBDC poses a formidable challenge.

Potential for Financial Instability: Runs on Commercial Banks

Another significant concern raised by the Bank of Canada is the potential for CBDCs to destabilize the financial system.A CBDC would make it easier and faster for individuals to move their money out of commercial banks and into the relatively safer haven of the central bank.

Imagine a scenario where there is a perceived risk in the banking system, perhaps due to rumors of a bank's insolvency.With a CBDC, individuals could instantly transfer their deposits to the central bank, triggering a system-wide run on commercial banks. Please note, this is a STATIC archive of website cointelegraph.com from, cach3.com does not collect or store any user information, there is no phishing involved.This could lead to a liquidity crisis and potentially even bank failures.

As the Bank of Canada notes, a CBDC could inadvertently make the financial system *less* stable, rather than more so.This risk needs to be carefully considered and mitigated before any CBDC is implemented.

The Justice Centre's Report: Undermining Rights and Freedoms

Beyond the technical and financial risks, the Justice Centre for Constitutional Freedoms has raised concerns about the potential impact of a CBDC on individual rights and freedoms.Their report highlights how the adoption of a CBDC in Canada could undermine fundamental liberties.

Specifically, the report cautions that a CBDC could exclude certain segments of the population:

The Homeless: Individuals without a permanent address may face difficulties accessing and using a CBDC.
The Elderly: Older adults may lack the technological skills and resources to navigate a digital currency system.
The Internetless: Those without internet access would be effectively excluded from participating in the CBDC economy.
The Technologically Illiterate: Individuals lacking digital literacy skills would struggle to use and manage a CBDC.
The Conscientious Objector: Those who oppose the use of digital currency for religious or ethical reasons would be forced to participate.

These concerns highlight the importance of ensuring that any CBDC implementation is inclusive and does not create a two-tiered financial system where certain groups are marginalized. Central Bank Digital Currency and Banking. Bank of Canada Staff Working Paper No. . Chiu, J. and T.-N. Wong. 2025. On the Essentiality of E-Money. Bank of Canada Staff Working Paper No. . Committee on Payments and Market Infrastructures (CPMI). 2025. Digital Currencies. Bank for International Settlements.Accessibility and usability must be prioritized.

Privacy Concerns and Government Surveillance

A major worry is the potential for increased government surveillance.Unlike cash transactions, which are largely anonymous, CBDC transactions could be easily tracked and monitored by the government. It s also possible that private cryptocurrencies or central bank digital currencies issued by other countries could become widely used in Canada in the future. This could compromise the role of an official, centrally issued currency the Canadian dollar in our economy and pose a risk to the stability of our financial system.This raises serious concerns about privacy and the potential for abuse.

Imagine a scenario where the government can monitor every single transaction you make. Canada's central bank, the Bank of Canada, recently put out a report on the risks and benefits of a central bank digital currency.[BREAK] An anonymous token-based central bank digital currency would pose particular security risks, the Bank of Canada wrote in its Oct. 5 report.[BREAK] These risks arise from how balances are aggregated and stored, how CBDC is used for transactions, and howThis level of surveillance could chill free speech and dissent, as individuals may be less willing to engage in activities that could draw unwanted attention from authorities.

Canada's Cautious Approach: Putting the CBDC Project on Hold

Recognizing these risks and concerns, the Bank of Canada has taken a cautious approach to CBDCs. 加拿大中央银行加拿大银行最近发布了一份有关中央银行数字货币的风险和收益的报告。加拿大银行在10月5日的报告中写道：基于匿名代币的中央银行数字货币（cbdc）将会带来特殊的安全风险。After several years of exploring the possibility, the central bank has put its CBDC project on hold.This decision reflects a growing understanding of the complexities and potential pitfalls involved.

However, this doesn't mean the Bank of Canada has abandoned the idea entirely. In response, some analysts suggest central banks should issue central bank digital currencies (CBDCs) to maintain government-issued money s central economic role. Although no major central bank has issued a CBDC to date, this In Focus describes how foreign central banks and the Federal Reserve (Fed) are approaching the issue. It alsoThey have stated that they are prepared to resurface the concept in the future if the need arises.This suggests that they are continuing to monitor developments in the digital currency landscape and are open to revisiting the issue if the risks can be adequately addressed.

The Bank of Canada's decision to pause its CBDC project should be seen as a responsible and prudent step.It allows for further research, analysis, and public consultation to ensure that any future CBDC implementation is safe, secure, and beneficial for all Canadians.

The Role of Private Cryptocurrencies and Foreign CBDCs

Even without a Canadian CBDC, the financial landscape could be disrupted by the widespread adoption of private cryptocurrencies or CBDCs issued by other countries.The Bank of Canada has acknowledged this possibility and its potential implications.

If a significant portion of Canadians were to start using foreign CBDCs or private cryptocurrencies, it could compromise the role of the Canadian dollar as the official currency. CALGARY, AB: The Justice Centre for Constitutional Freedoms released a new report examining how the adoption of a central bank digital currency in Canada could undermine the rights and freedomsThis could pose a risk to the stability of the Canadian financial system and the Bank of Canada's ability to control inflation.

To mitigate this risk, the Bank of Canada is actively monitoring the development of digital currencies globally and exploring ways to maintain the competitiveness and attractiveness of the Canadian dollar in the digital age.

International Collaboration and Regulatory Frameworks

The challenges and opportunities presented by CBDCs are not unique to Canada.Central banks around the world are grappling with these issues, and international collaboration is essential to develop effective regulatory frameworks.

The Bank of Canada actively participates in international forums such as the Financial Stability Board, the International Monetary Fund, and the Committee on Payments and Market Infrastructures to contribute to the development of global standards for digital currencies. Central banks are increasingly studying the monetary policy and financial system implications of issuing central bank digital currencies (CBDC). 1 This paper focuses on the sectoral and aggregate balance sheet dimensions of an initial CBDC issuance and of sudden large-scale increases in demand for CBDC.This collaboration is crucial to ensure that CBDCs are implemented in a safe and responsible manner.

Bridging the Gap: Addressing Misgivings and Building Trust

Recent findings by the Bank of Canada have revealed that many Canadians have misgivings about CBDCs. Canada's central bank, the Bank of Canada, recently put out a report on the risks and benefits of a central bank digital currency. An anonymous token-based central bank digital currency (CBDCThese concerns stem from a lack of understanding, privacy fears, and distrust in the government.It is crucial for policymakers to address these misgivings and build trust in the concept of a CBDC before it can be successfully implemented.

This requires:

Transparency: Clearly communicating the potential benefits and risks of a CBDC.
Education: Providing educational resources to help Canadians understand how CBDCs work.
Privacy Protections: Implementing robust privacy safeguards to protect user data.
Public Consultation: Engaging in open and transparent consultations with the public to address their concerns.

Only by addressing these concerns and building trust can policymakers hope to gain public support for a CBDC.

Conclusion: A Cautious Path Forward

The Bank of Canada's cautious approach to Central Bank Digital Currencies is warranted.The potential benefits of CBDCs – increased efficiency, financial inclusion, and innovation – are undeniable.However, the risks associated with security, storage, financial stability, and individual rights are equally significant. Recent Bank of Canada findings that showed Canadians have misgivings about a central bank digital currency should serve as a wake-up call that policymakers must do more to bridge theThe Bank of Canada is right to prioritize these concerns and to proceed with caution.

Key takeaways:

Security and storage risks are paramount: Anonymous token-based systems pose significant security challenges.
Financial stability is a concern: CBDCs could trigger runs on commercial banks.
Privacy and accessibility must be addressed: CBDCs could exacerbate inequalities and raise privacy concerns.
International collaboration is crucial: Global standards are needed for digital currencies.
Public trust is essential: Policymakers must address public misgivings and build trust.

While the future of CBDCs in Canada remains uncertain, one thing is clear: any implementation must prioritize security, privacy, accessibility, and financial stability.The Bank of Canada's pause allows for further research, analysis, and public consultation to ensure that any future CBDC is a force for good in the Canadian economy and society.

Continue to stay informed on the latest developments regarding digital currencies and their impact on the financial landscape.Your informed participation is crucial in shaping the future of money in Canada.