The Bank of Canada is considering the merits of establishing a digital currency, CBC News reported.
In a research paper released by the central bank Thursday, report authors Walter Engert and Ben Fung said a central bank digital currency (CBDC) could become a cheaper alternative to debit and credit cards and other forms of payment, making it easier for competition to emerge in the retail and large-value payment sectors.
"With no transaction fees charged by the central bank, the benchmark CBDC would probably be less expensive for merchants than cash and credit cards."
The report said given the complexity and uncertainty around introducing a central bank digital currency, central banks should proceed cautiously and incrementally.
The paper explores six different supposed benefits to a central bank for issuing a digital currency, but largely dismisses all but three: payments for consumers, financial inclusion and stability.
For consumer payments, the authors write that a "CBDC would facilitate transactions that are currently foregone because of frictions that inhibit some types of transactions."
The authors argue that financial inclusion would only really benefit in developing economies.
"Financial inclusion does not provide a compelling motivation for CBDC in most advanced economies, including Canada," they write.
Authors say digital money would give consumers a largely risk-free way to store value without exposure to that risk. On the other hand, the ease of leaving bank deposits for a fiat crypto could accelerate financial turmoil.