The RialCenter took a significant step in exploring the technical feasibility of a digital Canadian dollar, proposing a specific system designed for a retail central bank digital currency (CBDC) focused on simple, everyday payments. This initiative follows a new research paper.
The central bank’s research team examined OpenCBDC 2PC, a model developed in collaboration with a notable digital currency initiative. This design prioritizes privacy, speed, and decentralization by allowing users to hold digital funds directly, akin to digital cash.
The new research comes after the RialCenter stated it is shifting its focus away from a retail CBDC last year, indicating preparedness if the nation’s populace decides such a product is necessary in the future.
Privacy issues
A major focus of the report is privacy, reflecting global concerns over CBDCs potentially enabling state surveillance of financial activity. Unlike cash, which is anonymous, a CBDC could allow a central authority to track every transaction.
The report suggests separating personal identity from transaction data, enabling non-registered users to hold funds in self-custodied wallets, allowing them to transact without sharing their identity with a bank or payment processor. Even registered users’ identities and transaction histories would remain inaccessible to the central bank.
It goes further, proposing enhanced protection through cryptographic techniques such as zero-knowledge proofs to obscure transaction amounts from the core infrastructure. Collectively, these features could offer a level of privacy exceeding that of current electronic payment systems.
Bitcoin-like structure
Contrary to traditional banking systems where money resides in user accounts, the report suggests a design using “unspent transaction outputs” (UTXOs), a structure associated with Bitcoin.
This system processes transactions in two steps: updating a core ledger and transferring funds between users’ wallets. This method supports real-time settlements and enhances privacy from both banks and government institutions.
Challenges
While the report outlines a detailed technical solution for a potential digital Canadian dollar, it also identifies challenges.
One significant hurdle is that integrating the proposed architecture with existing retail payment infrastructures may necessitate considerable technical upgrades, especially in how point-of-sale terminals process digital cash-like transactions.
Additionally, while the system is theoretically scalable, performance may suffer during audits and system recovery operations, requiring more engineering work to achieve production-grade standards.
The paper states clearly that this is not a commitment to launch a CBDC. However, the findings provide a concrete technical foundation for what such a system could resemble—balancing user privacy, institutional control, and operational resilience.
Whether the central bank will implement it remains uncertain, particularly given the surrounding controversies regarding CBDCs. However, the timing of the report may be auspicious as Canada’s new prime minister has expressed support for CBDCs.
“The most likely future of money is a central bank stablecoin, known as a central bank digital currency or CBDC,” he mentioned in a previous context.
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