The Bank of Canada doesn't see a compelling case for introducing a digital currency at the present time, but is getting ready to move quickly, should the need for one become more evident, Deputy Governor Tim Lane said.

While Canadians are well-served by the present payment system, the central bank has begun to look at potential features and requirements of a digital currency, Lane said, according to the text of remarks to be delivered Tuesday in Montreal. The central bank is now actively developing a prototype digital currency, according to a background document.

“We need to move forward to work out what a potential CBDC might look like and how it could be managed, if the decision were ever taken to issue one.” Lane said regarding preparations for a potential central bank digital currency in Canada.

Central banks around the world are trying to get to grips with emerging payment technologies. Private-sector initiatives such as Facebook Inc.'s Libra are adding urgency to the debate over how digital currencies should be handled.

The Bank for International Settlements and the International Monetary Fund have called for central banks to at least study the possibility of as private sector firms experiment with competing units of exchange.

The Bank sees two main scenarios where the central bank could see the need to issue its own digital currency: firstly, if the use of cash is restricted or eliminated, and second, if private cryptocurrencies were to make serious inroads.

“In both scenarios, there would be an argument for the Bank of Canada to step in,” said Lane. “The Bank would do this as a trusted public institution, creating an official digital currency that is designed with the interest of the public as its top priority, with no commercial motive.”

It isn't the Bank of Canada's first foray into the matter -- staff have authored several papers on the potential effects of introducing a central bank digital currency, including the possibility of reduced market power of private banks. However, the central bank is shifting to the development of an actual prototype, though it could still be years away from being ready, and will still need a legislative framework.

“If one or more alternative digital currencies threatened to become used widely as an alternative to the Canadian dollar " then a central bank issued digital currency could be used to defend monetary sovereignty, the Bank said.