A digital currency plan is a proposal by a central bank to issue a new form of money that is digital and can be used for everyday payments by households and businesses. A digital currency issued by a central bank is also known as a central bank digital currency (CBDC)¹.

This is important because it could offer some benefits such as faster, cheaper and more secure transactions, greater financial inclusion, more innovation and competition in the payment sector, and more resilience against cyberattacks and fraud¹. It could also help central banks to implement monetary policy more effectively and to cope with the decline of cash use in some countries.

However, there are also some risks and challenges associated with digital currencies, such as potential impacts on financial stability, privacy, cybersecurity, consumer protection, legal frameworks and governance¹². Therefore, central banks need to carefully weigh the pros and cons of issuing a digital currency and consult with various stakeholders before making a decision.

According to the International Monetary Fund (IMF), around 100 countries are exploring CBDCs at one level or another². Some of the countries that are pursuing or considering a digital currency plan include China, the UK, the US, the European Union, Nigeria, El Salvador and many others²³.

A digital currency could help or hinder the efforts to combat money laundering and terror financing, depending on how it is designed and regulated.

On one hand, a digital currency could help prevent money laundering and terror financing by enhancing the transparency and traceability of transactions, facilitating the implementation of anti-money laundering and combating the financing of terrorism (AML/CFT) measures, and enabling the use of advanced technologies such as artificial intelligence and big data analytics to detect and report suspicious activities¹².

On the other hand, a digital currency could also facilitate money laundering and terror financing by offering high levels of anonymity, low levels of detection, cross-border reach, and easy access to illicit markets and services²³. This is especially true for some types of virtual assets (VAs), such as cryptocurrencies, that are decentralised, encrypted, and operate outside the regulatory framework³.

Therefore, it is important that any digital currency issued by a central bank or a private entity complies with the international standards and best practices for AML/CFT set by the Financial Action Task Force (FATF), the global watchdog for financial crimes³. These include applying a risk-based approach, conducting customer due diligence, monitoring transactions, reporting suspicious activities, imposing sanctions, and cooperating with other authorities.

Bank of Canada seeks public input on digital currency plan