20 April 2018

Bank of Canada DLT experiment raises PFMI questions

13 February 2017  |  14907 views  |  0 toronto

The Bank of Canada's experimental effort to build a wholesale payment system using a DLT-based settlement asset has thrown up concerns about whether the technology can meet international standards for systemically important payments infrastructure.

Last summer, the central bank revealed it is working with the country's biggest banks, Payments Canada and the R3 consortium on a DLT experiment called Jasper that uses a digital fiat currency dubbed Cad-Coin.

The system sees participants pledge cash collateral into a special pooled account held by the BoC, which then converts it to generate the Cad-Coin, which is transferred to fund participants' accounts. Then identifiable counterparties can exchange assets on the Cad-Coin platform and redeem the digital currency for cash collateral, with the BoC destroying the redeemed Cad-Coin.

As the experiment moves towards its conclusion in the spring, BoC senior deputy governor Carolyn Wilkins has written an article for CoinDesk in which she says that it has "taught us a lot about how the technology would have to improve to win a horse race with our current Large Value Transfer System".

With the bank's oversight role central, Wilkins says that a major objective of the work has been to see how the test system could meet the Principles for Financial Market Infrastructure (PFMIs).

While Jasper has proved itself up to the task of meet the PFMIs concerning collateral, credit risk, money settlement and liquidity risk, "there are some important gaps, through, with respect to settlement finality, operational risk, as well as access and participation requirements".

A new platform build is underway to "see if these gaps can be addressed".

Meanwhile, Wilkins says that the initial design is "quite collateral intensive" and that means that any cost savings are likely to come not through the system itself but through bank reconciliation efforts.

The big savings seem likely to come through building other applications - clearing and settlement, trade finance - on top of the core cash payment distributed ledger system.

Wilkins also warns that "while DLT may aim to reduce concentration of risk, a substantial amount of centralisation would still be required (eg permissioning of nodes and setting of operational standards) if applied to wholesale payments systems".

Comments: (0)

Comment on this story (membership required)

Finextra news in your inbox

For Finextra's free daily newsletter, breaking news flashes and weekly jobs board: sign up now

Related stories

Blockchain will change everything, but only if we can find the right talent

Blockchain will change everything, but only if we can find the right talent

09 February 2017  |  26064 views  |  2 comments | 31 tweets | 66 linkedin
ING aims to take blockchain experimentation to the next level

ING aims to take blockchain experimentation to the next level

31 January 2017  |  24887 views  |  1 comments | 37 tweets | 41 linkedin
Canada publishes multi-year roadmap for payments overhaul

Canada publishes multi-year roadmap for payments overhaul

08 December 2016  |  11092 views  |  0 comments | 18 tweets | 12 linkedin
Bank of Canada trials blockchain-based digital dollar

Bank of Canada trials blockchain-based digital dollar

16 June 2016  |  16458 views  |  3 comments | 33 tweets | 33 linkedin

Related company news


Related blogs

Create a blog about this story (membership required)
Visit http://response.ncr.comVisit https://aciworldwide.webex.comVisit www.nextgenbanking.co.uk

Top topics

Most viewed Most shared
Competing in an increasingly competitive spaceCompeting in an increasingly competitive s...
10755 views comments | 1 tweets | 2 linkedin
Revolut launches spare change savings toolRevolut launches spare change savings tool
9325 views comments | 14 tweets | 19 linkedin
Westpac and CommBank hit back at Aus Open Banking plansWestpac and CommBank hit back at Aus Open...
8533 views comments | 9 tweets | 8 linkedin
Barclays Bank sets up tech venture unitBarclays Bank sets up tech venture unit
8089 views comments | 16 tweets | 22 linkedin

Featured job

Find your next job