Internal Finance Department documents show officials have deep concerns about the effect of Facebook’s planned digital currency on Canada’s financial stability.
Officials wrote in the briefing note last summer that they believed the social media company had yet to address multiple concerns and risks its digital currency posed to the financial system.
The July briefing note, obtained by The Canadian Press under the Access to Information Act, also says the government was working on options to ease the risks.
Officials appeared less concerned about rivals like Bitcoin — which the briefing note says has not played a large role in everyday transactions in Canada for various reasons.
Unlike Bitcoin, Facebook’s offering would be a “stablecoin” whose value would be less volatile and could easily be used by hundreds of millions of the social media giant’s users upon release.
The ease of use and stability of value are among the reasons governments and central banks like the Bank of Canada have taken a keen interest in the currency.
The underlying worry for policymakers has to do with loss of control in the event a private digital currency becomes accepted globally and used without a bank as an intermediary, said Moon Jerin, CEO of Doctrina, which provides advice to financial and insurance companies on blockchain technology.
The association behind Facebook’s digital currency — first named Libra and now Diem — has backed it with cash and government securities to stabilize its value, linked it to various digital platforms so it can quickly and easily increase its reach, and designed it to have a low transfer cost.
The association has also said it wants to follow a regulated path into countries. Facebook’s stablecoin has gone through changes during its two years of development; officials writing the briefing note said they believed the changes had started to address government concerns but had not fully eased them.
Among their concerns were “money laundering and terrorist financing, sound governance, stability of the reserve, and monetary policy transmission for reserve currencies,” reads the briefing note to then-finance minister Bill Morneau.
Jerin said concerns from multiple jurisdictions also revolve around how to manage inflationary risks with the stablecoin, given how quickly the price of Bitcoin has risen recently.
BoC working on a digital currency
The Bank of Canada has been working on what it is calling a “digital loonie.” The bank has legislative authority from Parliament only to design, issue and distribute printed bills — not to offer a digital currency
The central bank has accelerated its work on its own digital currency, but Jerin said she expects the country to watch what other countries do first before making any big decisions.
“Canada, being already a little bit on the conservative side, is going to take a lot longer than other countries. I think they’re really trying to see what’s happening around the…