A digital version of the Canadian dollar could result in a couple of favorable scenarios for the country's economy, and this may prompt financial regulators to start thinking about the best way to initiate a trial project. Earlier this week, the Bank of Canada issued a report outlining two potential situations that could accelerate the creation of a digital loonie.

A central bank digital currency (CBDC) would be minted if for some reason Canadian society suddenly decides to stop using coins and bank notes. This is not a far-fetched scenario because Canadians are reasonably tech-savvy; however, they have yet to show a strong inclination to give up using cash altogether. The other scenario is more likely because it would involve a major cryptocurrency becoming popular in Canada and overtaking the dollar in terms of circulation. Given the current state of Bitcoin adoption, centralbank officials are not too worried about this.

This may not sound like a huge surprise, as other countries around the world have had a working CBDC in some form for the past few years. Banque du Canada is a private central bank, but it’s closely affiliated with the Bank of Canada, which is Canada’s own central bank. Its president and CEO, Joseph Laplante, has also served as the Bank of Canada’s deputy governor, and was the vice-chairman of the Bank for International Settlements’s Committee on Payment and Settlement Systems from 2014 to 2016.

For now, Canada's currency remains a physical commodity. Bank officials are willing to admit that a digital version of the greenback is not imminent, and have already been thinking about a possible implementation. While there is no digital money currently in use across Canada, the Reserve Bank of Canada (RBC) is trying to change that. In 2017, the central bank released a consultation paper that highlighted some of the potential benefits of a CBDC and suggested four things to think about.

What is the case for issuing a digital currency? If Canadian currency were to become less common, it could put downward pressure on the exchange rate. According to the RBC, the digital money could be a better tool to manage economic shocks. Given that the central bank's goal is to stabilize inflation and prevent the volatility of the CAD from becoming more pronounced, a digital version could be a useful tool.