The Bank of Canada has released a new paper that draws several lessons for digital currencies based on the evidence from Canada and the United States with bank notes and government issued notes.

Titled "Canadian Bank Notes and Dominion Notes: Lessons for Digital Currencies", the paper has been authored by Ben Fung from the BoC Currency Department; Scott Hendry from the BoC Funds Management and Banking Department; and Warren E. Weber, Visiting Scholar, Bank of Canada. It studies the period in Canada when both private bank notes and government-issued notes (Dominion notes) were simultaneously in circulation.

“Because both of these notes [private and government-issued] shared many of the characteristics of today's digital currencies, the experience with these notes can be used to draw lessons about how digital currencies might perform”, the authors wrote.

The key takeaways from the report are:

• Digital currencies likely will be counterfeited
• Digital currencies likely will not be inflationary
• Digital currencies will not be safe, although government intervention can help
• Private digital currencies will not be safe and will not be a uniform currency without government intervention
• A central bank can always get its digital currency into circulation, but its digital currency will not necessarily drive out existing private digital currencies

Importantly, the report emphasizes that privately issued digital currencies will not be perfectly safe without government intervention, adding that government intervention will be required for privately issued and government-issued digital currencies to be a uniform currency.

“We conclude that well designed and managed private digital currencies could circulate widely but only with appropriate government regulation to ensure their safety, soundness, and uniformity”, the paper reads.