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As the Bank of Canada consults on a digital loonie, a report from Moody’s Investors Service sees central bank-issued currencies prevailing in a world of digital money.

On May 8, Canada’s central bank launched an online public consultation seeking public feedback on the features that should be included in a digital Canadian dollar. The consultation runs until June 19.

Among other things, the bank is looking for input on how people would use a digital dollar, security features and concerns about privacy and accessibility.

“We want to hear from Canadians about what they value most in the design of a digital dollar. This will help us make design choices and ensure that it is secure, reliable and meets the needs of Canadians,” said Carolyn Rogers, senior deputy governor at the Bank of Canada, in a release.

At the same time, the central bank indicated that efforts to create other forms of digital money, including both private cryptocurrencies and central bank digital currencies, could compromise the existing role of the Canadian dollar and create financial stability risks.

Launching a digital loonie could help protect the economy by providing a stable, official digital payment option, the BoC suggested. And it could support financial inclusion for people who currently transact in cash and may not have a bank account, a credit record or other documentation.

In its report, Moody’s said central bank digital currencies (CBDCs) “will likely be perceived as the safest digital money.”

While this could draw funds away from bank deposits, the rating agency also said it expects central banks to design CBDCs to “facilitate payment efficiencies without reducing credit provision in the economy.”

Ultimately, these official digital currencies are “unlikely to displace banks’ role in financial intermediation,” it said.

“New payment solutions could support, rather than supplant, the use of commercial bank money,” it noted, adding that it expects money issued by central banks to continue to prevail in the digital world.

“Digitalization will fragment the money landscape, but central bank and commercial bank money will dominate,” it said.

That fragmentation is likely to include various forms of digital money, CBDCs, stablecoins and private crypto.

“Each of these will have varying levels of adoption, depending on the extent to which they increase efficiency or lower transaction costs. However, long-standing trust in central bank issued and commercial bank money will help these remain the dominant instruments even in a digital world,” Moody’s said.

At the same time, private crypto, whose value is solely a function of supply and demand, appears to be “too volatile to meet the basic function of money,” it said. “Even the largest stablecoins have been unable to maintain their peg consistently in recent years.”

In its consultation, the Bank of Canada said it doesn’t see the need for a digital loonie just yet, and that the decision to issue one will rest with the government and Parliament. In the meantime, it will publish a report later this year detailing the results of this public consultation.