TORONTO (Reuters) - Modernizing Canada’s aging payments systems will help strengthen the stability and efficiency of the country’s financial system and reduce systemic and liquidity risk, a senior official at the Bank of Canada said on Thursday.
In a speech that mentioned monetary policy only in passing, Deputy Governor Sylvain Leduc said that while the fast pace of technological change makes updating the high-value payment system challenging, inaction is not an option.
Leduc said a sound payments system is as important for the stability of the financial system as a reliable electrical grid is for the economy.
“And a stable financial system is essential for the effective conduct of our inflation-targeting monetary policy,” Leduc said in prepared remarks to a Payments Canada conference in Toronto.
Like most central banks, the Bank of Canada is mandated to oversee the country’s main large-value and retail payments systems, which are operated by Payments Canada, a non-profit organization established by Canada’s parliament.
Leduc said Canada’s payments systems are showing their age but Payments Canada is making “steady progress” on a modernization plan that will take several years to complete - and the central bank is working closely to provide input.
The goal is to develop a new system that is fast, flexible and secure, as well as fully aligned with global regulatory standards, and which has the architecture to allow for future innovations, Leduc said.
He said the bank envisages the new high-value payment system will be a fully collateralized, defaulter-pays system.
“While we are ready to consider different designs consistent with this vision, an RTGS (real-time gross settlement) system with liquidity-saving mechanisms may provide a relatively simpler and well-tested framework,” Leduc said.
He later added that the ability to settle payments 24 hours a day is part of the bank’s ultimate vision. Currently, payments are settled at the end of each day.
The Bank of Canada, which has been conducting an experiment using a blockchain-based payment system, said in an op-ed column published on Thursday that its project showed it is currently not compatible with operating the country’s centralized interbank payment systems.
While Leduc said the project is still in its infancy, he added during a question and answer session that a digital currency is not in the bank’s near future.
“Canadians are attached to their currency and they’re still transacting a fair amount with cash. We’re cognizant of that.”
Reporting by Andrea Hopkins and Leah Schnurr; Editing by David Gregorio, Bernard Orr