UPDATE 2-Update of payments grid would boost efficiency -Bank of Canada | Reuters

(Adds details on settlement, digital currencies, byline)

By Solarina Ho

TORONTO May 25 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.

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“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)