After an inquiry to examine the potential for blockchain to play a role in the nation’s interbank system, the Bank of Canada has ultimately decided against the technology.
Reports Friday (May 26) said the central bank revealed its views in an article for The Globe and Mail publication, penned by Senior Deputy Governor Carolyn Wilkins as well as Payments Canada’s Gerry Gaetz. There are simply “too many hurdles” that must be overcome for blockchain to be integrated effectively into the nation’s interbank payment system, they said — at least for now.
The Bank of Canada, Payments Canada, top banks in the nation and blockchain consortium R3 all joined together about a year ago to explore the use of distributed ledger technology. The hurdles identified in the column include the incompatibility between blockchain and the need for privacy around some wholesale payments, as well as scalability.
“The bottom line is that a standalone DLT wholesale system is unlikely to match the efficiency and net benefits of a centralized system,” Wilkins and Gaetz wrote. “In fact, at its heart, there exists a fundamental inconsistency or tension between a centralized wholesale interbank payment system, as we have now, and the decentralization inherent in DLT.”
The authors did agree that “one day,” perhaps, the technology could see a place in the interbank system.
“Our experiment, done in two phases, demonstrated that it’s indeed possible to settle wholesale payments on a distributed ledger,” they stated. “Our work also found that such a system could meet some, but not all, of the core international principles for financial market infrastructure.”
There is potential for distributed ledger technology to eventually generate cost savings through the reduction in back-office reconciliation costs, they said.
According to reports, Canada will continue to modernize its existing payments infrastructure and adapt ISO 20022 messaging standards to meet the financial industry’s need for privacy, scalability and greater efficiency in cross-border and domestic wholesale payments.