Researchers develop central bank digital currency proposal for Bank of Canada

concept of digital technology

A proposal submitted to the Bank of Canada by a team of academic researchers from Osgoode Hall Law School and the University of Toronto (U of T) on what a central bank
digital currency framework could look like in Canada has been selected as one of three proposals to be developed by the bank into a full report.

The bank is undertaking research to potentially launch a digital currency alongside the country’s banknotes, and invited universities to play a role in this innovation by entering the Model X Design Challenge.

The challenge was meant to encourage the development of “foundational ideas” for a central bank digital currency business model and system architecture (known as “Model X”), according to the bank. While no decision has been taken to issue a central bank digital currency, the Bank of Canada notes “it is working to design and develop one, along with a business model, as a contingency.”

A central bank digital currency is a digital unit of payment, comparable to digital coins such as Bitcoin, but that is issued and backed by a central bank as opposed to a private network. It has similar characteristics to cash, but instead of keeping it in a physical wallet you keep it in an online wallet that you can access using your cell phone or another electronic device. Its digital features make it a good alternative to traditional payment methods, such as credit or debit card payments.

Poonam Puri
Poonam Puri

In addition to the U of T/YorkU submission from Osgoode Professor Poonam Puri and University of Toronto Professors Andreas Veneris and Fan Long (Department of Electrical and Computer Engineering, and Department of Computer Science) and Andreas Park (U of T Mississauga’s Department of Management and the Rotman School of Management); the Bank also selected submissions from teams at McGill University and the University of Calgary.

Each team was awarded a project fee to put toward the research competition, and the work of the team had to be a business school and computer science department collaboration.

The U of T/YorkU contingent worked on their overall model and recommendations as a team, but the technical components of their analysis were led by Veneris, Long and Park, with Puri focusing primarily on the legal, governance and policy implications of their design recommendation.

“We are recommending the implementation of a brand new currency/payment system, which obviously raises a number of novel legal issues and policy choices,” said Puri, who is an expert in corporate governance, corporate law and securities law.

“My role on the team has been to consider the feasibility of our solution within the current regulatory regime and consider potential recommended changes to current regulatory frameworks in order to support our proposal.”

Osgoode students Anxhela Adhamidhis and Cameron Teschuk assisted her with the research.

Puri said their legal analysis focused on four main issues. First, whether the Bank of Canada has the authority to issue a new digital currency, or if any amendments are required to its governing legislation (the Bank of Canada Act) to permit it to do so. Second, consideration of the ideal regulatory framework to regulate participants in the new digital payments network. Third, how payment intermediaries would fit within anti-money laundering and counter terrorist financing (AML/CFT) laws.

“Canada has made a conscious effort in recent years to update its AML/CFT regulations and we wanted to make sure that our recommendation fits within the AML/CFT regulatory landscape to ensure that any central bank digital currency can’t be used as a vehicle for illegal activities.” The fourth consideration was privacy.

“We prioritized privacy in order to ensure that any central bank digital currency closely resembles the privacy benefits that currently accompany traditional cash payments,” Puri said.

She also noted that issuing a central bank digital currency would create a variety of different legal and regulatory challenges, but it is nevertheless possible to do so within our current regulatory regime.

“Our legal analysis touches on a number of issues that require further research, but the overall takeaway should be that these issues can be resolved and that the legal challenges should not be considered an insurmountable hurdle for the Bank of Canada,” Puri said. “We’re hoping that our legal analysis helps drive that point home and can be used as a launching point if the Bank of Canada decides to pursue our recommendation further.”

To view the proposal, visit