BANK OF CANADA: BLOCKCHAIN NOT MORE EFFECTIVE THAN CENTRAL BANK SYSTEM AT THIS TIME

The allure of blockchain technology has captivated industries worldwide, promising decentralized, secure, and transparent solutions.However, when it comes to the core of a nation's financial infrastructure, the Bank of Canada (BoC) remains unconvinced that blockchain, or distributed ledger technology (DLT), currently offers a superior alternative to its existing centralized system.Recent inquiries and experiments conducted by the BoC suggest that while blockchain holds potential, its effectiveness and security in the context of a national interbank system don't yet outweigh the benefits of the traditional framework.This isn't a blanket dismissal of blockchain's capabilities, but rather a pragmatic assessment based on feasibility studies and practical implications. In fact, the money supply rule underpinning cryptoassets like bitcoin may turn out to be more of a disadvantage than an advantage. Finally, for the third question, we examine what implications the emergence of cryptoassets together with a declining use of cash in transactions have on whether a central bank should issue its own digital currency.The BoC's stance reflects a cautious approach, prioritizing the stability and efficiency of the Canadian financial system above all else. It was the first time in the world that a central bank participated in a distributed ledger technology (DLT) experiment in partnership with the private sector. This collaborative research initiative between the public and private sectors aims to understand how DLT could transform the wholesale payments system.This article explores the Bank of Canada's reasoning, its experiments with blockchain, and the broader implications for the future of digital currency and financial technology in Canada.We'll delve into the challenges, opportunities, and ongoing research surrounding blockchain and its potential role in the Canadian financial landscape. Bank of Canada: Blockchain Not More Effective Than Central Bank System at This Time Artem Karnaukh, CPA on LinkedIn: Bank of Canada: Blockchain Not More Effective Than Central Bank SystemThe BoC isn't against the technology, but rather believes that for now, a centralised system is better for Canada.

Bank of Canada's Stance on Blockchain Technology

A Bank of Canada official, James Chapman, Senior Research Director at the BoC's funds management and banking department, publicly questioned the effectiveness and security of using blockchain tech for banking at the 2025 G20 Global Financial Stability Conference in Seoul. The Bank of Canada and the Massachusetts Institute of Technology (MIT) today announced an agreement to collaborate on a twelve-month research project on Central Bank Digital Currency (CBDC). The Bank will work with the MIT Media Lab s Digital Currency Initiative team to explore how advanced technologies could affect the potential design of aThis declaration underlines the BoC's measured perspective on the technology's applicability to core banking functions. As I mentioned earlier, the Bank of Canada is not responsible for regulating crypto products. Nonetheless, we have been examining their potential impact on the stability of Canada s financial system. We ve also been participating in international research on them, through the Financial Stability Board (FSB), G20 and G7.The Bank has conducted in-depth inquiries into blockchain's feasibility, carefully weighing its potential against the established stability and efficiency of its current systems.

This skepticism isn't born of a lack of exploration. The Bank of Canada said on Thursday that its experiment with blockchain, or distributed ledger technology, showed it is currently not compatible with operating the country's centralizedThe BoC has actively engaged in researching and experimenting with blockchain technology, recognizing its potential to disrupt and improve various aspects of finance.However, after rigorous analysis, the bank has concluded that, at this particular time, the centralized system it currently operates is better suited for the country's needs.

Project Jasper: Exploring Blockchain's Potential

The Bank of Canada hasn't shied away from exploring blockchain's potential. 1. Introduction. Over the past few decades, technological advances have enabled consumers to significantly change the way they make payments, moving from primarily paper-based methods, such as cash and cheques, toward digital payments in the form of debit, credit and prepaid cards, mobile payments (e.g, Apple Pay or Google Pay), electronic transfers of funds (e.g, Interac e-transfer) andIn fact, the BoC was one of the first central banks to actively participate in distributed ledger technology (DLT) experiments. ""Project Jasper,"" a collaborative research initiative between the public and private sectors, aimed to understand how DLT could transform the wholesale payments system.This project marked a significant step in understanding the practical implications of blockchain in a real-world banking environment.

The project involved several phases.These phases demonstrated the central bank can benefit from blockchain based wholesale payment systems, which can increase efficiency and reduce costs.The Toronto Stock Exchange operator TMX Group, and non-profit organization Payments Canada, completed tests showing blockchain can be used for instantaneous securities.

CAD-Coin: A CBDC Prototype

Building on the insights gained from Project Jasper, the BoC extended its exploration in 2025 by developing a blockchain-based Central Bank Digital Currency (CBDC) prototype called CAD-coin.This initiative showcased the Bank's commitment to understanding the nuances of digital currencies and their potential impact on the Canadian financial system.

The CAD-coin project allowed the BoC to delve into the intricacies of CBDC design, including:

• Storage of Claims: Exploring how to securely store claims in Canadian dollars against the Bank of Canada using blockchain technology.
• Payment Mechanisms: Investigating various payment methods, including person-to-person, point-of-sale, and online transactions.

Security Concerns Surrounding Blockchain in Banking

One of the primary reasons for the BoC's hesitancy is the concern surrounding the security of blockchain technology in a banking context. This research included a public consultation process in 2025, which totaled nearly 90,000 consultation responses. 1 As recent as summer 2025, the Bank of Canada argued that Canada would need to stay at the forefront of innovation of digital currencies to maintain monetary and regulatory sovereignty. 2 However, even as Canadians continue to moveWhile blockchain is often lauded for its inherent security features, its implementation in a complex financial system raises significant questions. A Bank of Canada official questioned the effectiveness and security of using blockchain tech for banking at a conference in South Korea today, June 14, according to local reports.[BREAK] As part of a presentation at the 2025 G20 Global Financial Stability Conference in Seoul, James Chapman, senior research director at the BoC's funds management and banking department, also calledSecurity is one of the main requirements that the Bank of Canada looks at.

Consider these aspects:

• Cyber Threats: The Bank of Canada acknowledges the increasing complexity and sophistication of cyber threats.The financial sector, with its high-value assets, is a prime target for malicious cyber activity.A blockchain-based system, while offering some security advantages, is not immune to attacks.
• Smart Contract Vulnerabilities: The DeFi sector relies heavily on smart contracts. 3 Bank of Canada THE BANK OF CANADA S CYBER THREAT LANDSCAPE The complexity of the cyber threat landscape continued to evolve during the COVID-19 pandemic. While some of the attack vectors are not new, cyber attacks are becoming more frequent and sophisticated. The financial sector was an attractive target for malicious cyberWhile powerful, these contracts can contain vulnerabilities that malicious actors could exploit.
• Centralized vs. A Bank of Canada (BoC) official questioned the effectiveness and security of using blockchain tech for banking at a conference in South Korea today, June 14, according to local reports.Decentralized Control: While blockchain promotes decentralization, central banks need a certain level of control and intervention, especially with a digital currency. The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Sveriges Riksbank and the Swiss National Bank, together with the Bank for International Settlements (BIS), have created a group to share experiences as they assess the potential cases for central bank digital currency (CBDC) in their home jurisdictions.A purely decentralized CBDC might be difficult to manage and regulate.If a CBDC is operated on a centralized approach where the central bank hosts the transaction ledger, then the central bank becomes the intermediary that needs to validate transactions.

Centralized System Advantages

The current centralized system used by the Bank of Canada has several advantages that contribute to its stability and efficiency.These include:

• Established Infrastructure: The existing infrastructure has been refined and optimized over decades, providing a reliable and well-understood framework for financial transactions.
• Regulatory Oversight: Centralized systems are subject to well-defined regulatory oversight, ensuring compliance and accountability.
• Scalability: While blockchain faces scalability challenges, centralized systems can often handle high transaction volumes efficiently.
• Control and Intervention: The central bank has the ability to intervene and manage the system as needed, ensuring stability during times of crisis.

The Future of Digital Currency in Canada

Despite its current reservations, the Bank of Canada continues to monitor and research digital currencies and blockchain technology.The central bank recognizes the evolving landscape of payments and the potential for digital currencies to play a significant role in the future.

Key considerations for the future include:

• Retail CBDC Exploration: The Bank of Canada doesn't close the door on the topic, stating that it will continue to monitor global retail CBDC developments.
• Digital Canadian Dollar: The term ""Digital Canadian Dollar"" is being used throughout the study, and now ubiquitously by the Bank. The two phases demonstrate that central bank can benefit from blockchain based wholesale payment system, which can increase efficiency and reduce costs. To explore more applications of blockchain, in 2025, the Central Bank of Canada extended Project Jasper and developed a blockchain based CBDC prototype, CAD-coin.This term will be used rather than central bank digital currency.
• Collaboration with MIT: The Bank of Canada is collaborating with the Massachusetts Institute of Technology (MIT) on a research project exploring how advanced technologies could affect the potential design of a CBDC.
• International Cooperation: The Bank of Canada participates in international collaborations with other central banks and organizations like the Bank for International Settlements (BIS) to share experiences and assess the potential cases for CBDCs.

Understanding Central Bank Digital Currencies (CBDCs)

A Central Bank Digital Currency (CBDC) is a digital form of a country's fiat currency, issued and backed by the central bank.Unlike cryptocurrencies like Bitcoin, which are decentralized and not backed by any government, a CBDC would be a liability of the central bank, just like physical cash.

Several countries are exploring or piloting CBDCs, motivated by factors such as:

• Improving Payment Efficiency: CBDCs could potentially offer faster and cheaper payment options, especially for cross-border transactions.
• Financial Inclusion: CBDCs could provide access to financial services for individuals who are currently unbanked or underbanked.
• Modernizing the Payment System: CBDCs could help modernize the payment system and reduce reliance on cash.
• Maintaining Monetary Sovereignty: Some central banks believe that issuing a CBDC is necessary to maintain monetary sovereignty in the face of the growing popularity of cryptocurrencies and other digital assets.

How a Digital Canadian Dollar Might Work

The Bank of Canada has outlined some potential features of a digital Canadian dollar:

• Availability: It would most likely be made available to Canadians through financial intermediaries and service providers rather than directly by the central bank.
• Complementary to Bank Notes: It would complement bank notes, ensuring Canadians continue to have all the benefits of money issued by the central bank.
• Focus on Point-of-Sale Transactions: Recognizing that more than 80% of retail consumer purchases in Canada occur at physical locations, the CBDC would likely focus on facilitating point-of-sale (POS) transactions.

The Role of Smart Contracts

Smart contracts are self-executing contracts written in code and stored on a blockchain. The blockchain providing DeFi achieves this by running computer programs known as smart contracts on the blockchain. To understand how a smart contract works, consider the example of collateralized loans such as a mortgage (see Chiu, Kahn and Koeppl [2025] for details).They automatically enforce the terms of an agreement when predefined conditions are met. Canada s central bank, Toronto Stock Exchange operator TMX Group, and non-profit organization Payments Canada, completed tests showing blockchain can be used for instantaneous securitiesThis technology has the potential to revolutionize various industries, including finance.

The Bank of Canada has considered the potential applications of smart contracts in the financial system, particularly in the context of decentralized finance (DeFi). The term Digital Canadian Disollar used throughout the study, and now ubiquitously by the Bank. We this termuse rather than central bank digital currency . 2. If issued, a Digital Canadian Dollar would most likely be made available to Canadians through financial intermediaries and service providers rather than directly by the central bank.To understand how a smart contract works, consider the example of collateralized loans such as a mortgage. Canada s central bank has questioned blockchain s effectiveness in the banking sector this week. A Bank of Canada (BoC) official questioned the effectiveness and security of using blockchain tech for banking at a conference in South Korea today, June 14, according to local reports. As part of a presentation at the 2025 G20 Global Financial Stability MoreSmart contracts can automate the loan process, manage collateral, and execute payments according to the agreed-upon terms. Considerations in system design A CBDC system for Canada. While additional clarity and refinement of requirements are needed, the Bank of Canada would be able to develop a system that supports the ability to: store a claim in Canadian dollars against the Bank of Canada; make payments person to person, at points of sale and onlineThey can also be used to create more complex financial instruments and protocols.

Regulations and Crypto Products

The Bank of Canada is not responsible for regulating crypto products. Introduction. According to the Bank of Canada s Methods-of-Payment (MOP) surveys in recent years, more than 80% of retail consumer purchases in Canada occur at physical locations.1 This suggests that such point-of-sale (POS) transactions are critical for the relevance of a central bank digital currency (CBDC).Nonetheless, it has been examining their potential impact on the stability of Canada's financial system. The Federal Reserve, the central bank of the United States, provides the nation with a safe, flexible, and stable monetary and financial system. Main Menu Toggle Button Sections Search Toggle Button Search Search Submit Button SubmitThe Bank is also participating in international research on them, through the Financial Stability Board (FSB), G20 and G7.

The emergence of cryptoassets, combined with the declining use of cash in transactions, raises important questions about the need for a central bank to issue its own digital currency.

Considerations for Designing a CBDC System for Canada

The Bank of Canada is carefully considering various factors in the design of a potential CBDC system, including:

• Storage: A system that supports the ability to store a claim in Canadian dollars against the Bank of Canada.
• Payments: A system that allows for person-to-person, point-of-sale, and online payments.

Conclusion: A Cautious but Open Approach

In conclusion, the Bank of Canada's current stance on blockchain technology reflects a pragmatic and cautious approach. In an interview with an official at the Bank of Canada, he believes that the BOC was not convinced at this time that a distributed ledger system or a blockchain system will be much better than a centralized system that we now operate (S. Hendry, personal communication, Octo).While recognizing the potential benefits of blockchain, particularly in areas such as wholesale payments and securities settlement, the BoC remains unconvinced that it currently offers a superior alternative to its existing centralized system for core banking functions.Concerns about security, scalability, and the need for centralized control are key factors driving this assessment.The money supply rule underpinning cryptoassets like bitcoin may turn out to be more of a disadvantage than an advantage.

However, the Bank of Canada is not dismissing blockchain technology outright.It continues to monitor developments, participate in research initiatives, and collaborate with other central banks to explore the potential of CBDCs and other digital assets.The development of the CAD-coin prototype and the collaboration with MIT demonstrate the BoC's commitment to staying at the forefront of innovation in the digital currency space.

The key takeaways from the Bank of Canada's perspective are:

• Current System Stability: The existing centralized system provides a stable and efficient foundation for the Canadian financial system.
• Security Concerns: Security concerns remain a significant hurdle for widespread blockchain adoption in banking.
• Ongoing Research: The Bank of Canada is actively researching and experimenting with blockchain and CBDCs.
• International Collaboration: The Bank of Canada is collaborating with other central banks to share experiences and assess the potential of CBDCs.
• A Centralised system is deemed more effective: For the moment, the Central Bank thinks a centralised system is better for Canada.

As technology evolves and blockchain matures, the Bank of Canada will continue to evaluate its potential role in the Canadian financial landscape.In the meantime, the central bank remains committed to ensuring the stability, efficiency, and security of the country's financial system.Canada would need to stay at the forefront of innovation of digital currencies to maintain monetary and regulatory sovereignty.