Conservative leadership candidate Pierre Poilievre has recently decided to weigh in on the debate over whether the Bank of Canada should issue a Central Bank Digital Currency or CBDC as they are called.The decision by the Bank to consider whether or not to offer Canadians a digital equivalent of our paper banknotes is not unique to Canada – most of the major banks around the world along with the Bank for International Settlements (the global association that all central banks belong to) have been studying whether to launch a CBDC for a while now.  One of the main reasons for doing so is that a CBDC that is backed by government has the potential to significantly reduce transaction costs for consumers that are associated with legacy payment systems.The idea behind this is that consumers would benefit from a monetary instrument that is cheaper to transact with, since they would no longer pay fees to banks to maintain their accounts.  Merchants would also benefit from no longer having to pay significant “interchange fees” to offer their customers access to card-based payments, which would ultimately be passed down to consumers through lower prices.  In addition, the values of these currencies would be guaranteed by the government if something goes wrong.Studies show that when the costs of moving money, or transaction costs as they are called, can be significantly lowered, then the economy as a whole will benefit as a result. Central banks are particularly keen on exploring developing CBDCs since they are concerned about crypto currency alternatives that could challenge their monopolies on issuing currencies.Mr. Poilievre has spoken about his fondness for cryptocurrencies, particularly Bitcoin, in the past.  Part of the problem here is that at the present time, cryptocurrencies are more of an investment than an actual currency.  This is because they are highly volatile, so much so, that they cannot serve as a reliable standard of deferred payments, even with insurance factored in to take the volatility into account.  This impacts supply chains, since recipients face such tremendous uncertainty over what the precise value of the currency that they are receiving sometime in the future will be beyond what one could expect with fluctuations in nationally issued (also called fiat) currencies.Cryptocurrencies pose significant risks for consumers, as well.  These risks include the fact that they exist as peer-to-peer networks in a decentralized manner (something that Mr. Poilievre says he finds appealing).  What this means is that all transactions are between individuals with no middleman between to facilitate the transaction.  Instead, the open-source programming that links a network of computers that powers these currencies is what facilitates these transactions (think of the old file sharing networks that were used to share music or movies).  However, when something goes wrong, or for example you lose your password to your account, there is no central authority that can look into the matter for you.  Certain companies can offer you a service to access your money, but as the recent Quadriga example shows, this is not without risk to consumers either.Consumers rightly would be concerned if they found out that by losing their passwords, they could lose all of their cryptocurrency holdings - and nobody could help them.  Moreover, unlike our bank deposits that are subject to deposit insurance, there is nothing preventing cryptocurrency holdings from hitting a zero or negative dollar value.Mr. Poilievre believes that allowing the Bank of Canada to issue a CBDC would result in a “nationalization” of our bank deposits and provide unfair competition against cryptocurrency providers.  While some might find the idea of increasing competition for our currency as a good thing, the experiences in this country with private banknotes would suggest otherwise.Much like cryptocurrencies today, before 1950 Canada had its paper money issued by the private banks.  In other words, there was no Bank of Canada $5 bill for instance, but rather the Royal Bank would issue one.  These banknotes formed the core of the business of banking since they played the role that deposits now play today as a source of capital for banks to lend out.Like cryptocurrencies today, private banknotes were highly unstable and made it very difficult for businesses to access capital when needed.  This was especially the case in Canada during the crop moving season in 1907.  At that time, farmers needed additional liquidity to get their crops to the market and the banks were struggling under the weight of the gold standard that was designed to act as a check on price stability.  Banks at the time were also faced with restrictions on their ability to lend that resulted from the private banknote system (implemented to ensure that banks remain prudent in their note issuance, which is how they delivered credit issued through loans) in order to provide the market with access to credit.One of the fundamental lessons that Canada learned from this experience was that it needed a modest level of inflation around 1 % or so, to provide the financial system with sufficient liquidity that could then boost the supply of credit which in turn, helped power growth in the economy.Contrast this with cryptocurrencies currently in existence.  Under the Bitcoin system, the currency of Bitcoin has its supply limited to act as a deflationary currency.  While this may seem desirable at the present, one must consider what the effect of this will be once prices stabilize again.  Any country that adopts Bitcoin as legal tender, would be surrendering its ability to conduct monetary policy to the algorithm that governs the issuance of Bitcoin.  In other words, our monetary policies would be on automatic pilot as they once were.  This is a system that is deliberately designed to be deflationary, and which cannot be changed.  A single-minded approach to maintaining such a low inflation rate is one of the reasons why this country had a prolonged economic recession in the early to mid 1990's, which at that time was attributed to be much longer and painful than necessary as a result of the Bank of Canada's zero inflation focus at that time.And this then brings us full circle to Mr. Poilievre's proposals.  Under the Backgrounder that his campaign team has provided, Mr. Poilievre would prevent the Bank of Canada from issuing a CBDC and restrict it to issuing paper money only.  Cryptocurrency providers would be looked to in order to fill the void left from increasing an increasing global reliance on digital currencies, private or public.It is not difficult to imagine what this future would entail – an increasing presence of private currencies that would be more unstable (there are alternatives called “stable coins” that purport to have solved these problems, but these, too, are not as stable as their fiat based counterparts), have increasing risks to consumers and significant transaction costs resulting from the lack of certainty and predictability brought to our economy as a result.  Rather than keeping at the forefront of global developments aimed at reducing transaction costs and making our payment system more efficient, safer, and more secure, the Bank of Canada would be forced to watch from the sidelines as our international trade partners move forward with CBDCs without us.  This will negatively affect our future economic outlook as our global competitiveness falls as a result.Mr. Poilievre would like us to think that leaving this market in private hands will bring more price stability, additional consumer choice and protect access for Canada's banks to consumer deposits as a source of capital for lending.  But just like the business of private banknotes evolved away from private banknotes as a source of capital, towards consumer bank balances, the same could also be true in a CBDC world.  Here, banks could access liquidity through issuing bonds, for instance, through an expansion of the discount window that banks would have access to under the central bank, or by offering individuals inducements (as they once did by paying interest) to maintain their holdings of CBDCs with banks who would help them manage them.  Individuals would gain from having a cheaper payment alternative without the risks of cryptocurrencies.  The more recent experiences with cryptocurrencies would also rightly leave an individual wondering what if anything, they would gain from moving their bank account balances and cash holdings to a private cryptocurrency alternative that has nothing to back up consumer savings when something goes wrong.If history is a guide, instead of bringing us an exciting future, a reliance on these private currencies will bring us a repeat of some very painful lessons we have learned in the past.  Rather than obliging the Bank of Canada to remain static, the better approach may be to let it move forward and join the global evolution in payment mechanisms.Muharem Kianieff is an Associate Professor at the University of Windsor, Faculty of Law working in the areas of Banking Law and Payment Systems.  His research looks at the role that regulation plays as it applies to innovations in payment mechanisms and financial technology. By using economic and historical analyses, Kianieff seeks to make proposals for reform that make products safer for consumers and increases access to justice.  Kianieff is the author of the recent Informa Law book, “Blockchain Technology and the Law:  Opportunities and Risks.”