Bank of Canada’s 2018 Outlook for Cybersecurity and Cryptocurrency

Despite the country creating thousands of new jobs and the economy on pace for three per cent growth, a few things have the Bank of Canada’s governor Stephen Poloz worried.

In a Toronto address, Poloz spoke about a few things that were keeping him up at night, noting a few slower-moving problems that will most likely affect the economy for years to come.

The first is cybersecurity threats, an issue countries and massive companies alike have had to face over the past 12 months.

“Our financial system is as good as it is today because of major advances in communications and financial technology, and a high degree of connectivity between institutions,” said Poloz in his speech. “However, this connectivity also creates a vulnerability. It means that a problem in one institution may spread to others and be amplified. As such, a successful cyber attack on one institution can become a successful attack on many.”

Poloz said even if threats are becoming more serious, financial institutions in particular are taking those threats more seriously than ever before. This has led to widespread collaboration between the big five banks as well as smaller fintech operations.

Still, financial institutions cannot act as if they are impenetrable. They need to be prepared in the case a cyber attack succeeds, and work closely with payments systems to create robust recovery programs.

“It is vital that we be able to ‘fail over’ quickly so our key functions will be maintained in the event of a major disruption, be it a cyber attack, natural disaster or some other crisis,” said Poloz. “This is a matter not just of operational continuity, but of maintaining confidence in our financial system in stressed situations.”

Poloz also addressed the high price for housing and increasing household debt, along with a tough job market for younger generations. Despite gains in the economy, only one-seventh of the 350,000 new jobs created in the past year have gone to young workers. Couple this with growing debt for housing and lax stress testing for loans, and young folks have a bit of a mountain to climb.

The Bank of Canada’s governor finished his speech by addressing the decentralized elephant in the room: cryptocurrency. He addressed it as a traditional banker would, going after it’s nomenclature as a form of “currency.”

“For something to be considered a currency, it must act as a reliable store of value, and you should be able to spend it easily,” said Poloz. “These instruments possess neither of these characteristics, so they do not constitute ‘money.’”

He also discussed how the only risk-free method of payment is cash from a bank, something a banker would most definitely make known. Cryptocurrency is indeed volatile, but it is becoming more and more secure as blockchain technology increases transparency and the most reputable wallets and traders float to the surface.

There is at least progress towards accepting cryptocurrencies, as Poloz labelled them securities rather than cash and finished his thoughts by stating, “All central banks are researching this. We will have more to say about the subject in the months ahead.”

The goal of Poloz’s speech was to share some of the bank’s preoccupations and targets for improvement in the coming year. Canadians may find it refreshing to see cryptocurrency and cybersecurity as real talking points instead of simply being shaken off, but there is still a lot of work to be done in terms of making sure both are integrated into every financial institution in the right way.