The Impact of Potential Retail Central Bank Digital Currency on the Canadian Financial System During a Severe Recession

Sofia Priazhkina

No 2026-30, Staff Analytical Papers from Bank of Canada

Abstract: This policy note examines how a non-interest-bearing retail central bank digital currency (CBDC) could affect the financial stability of Canada’s systemically important banks during a severe recession. Stress test results show that the banks remain resilient, maintaining key regulatory ratios even under high CBDC demand. To manage funding outflows, banks scale back balance sheet growth and replace some lost deposits with alternative funding. Profitability stays strong overall, though short-term volatility may occur. To reduce potential risks, the note recommends a gradual CBDC rollout with holding limits, well-timed capital buffer adjustments, liquidity regulation updates, early communication of regulatory changes, and coordination with central bank balance sheet policies.

Keywords: Financial system; Financial stability and systemic risk; Models and tools; Economic models; Money and payments; Digital assets and fintech; Structural challenges; Digitalization and productivity (search for similar items in EconPapers)
JEL-codes: E44 E58 E61 G01 G21 G28 (search for similar items in EconPapers)
Date: 2026-06
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocsap:26-30

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