OSFI cleared the legal ground, and big corporate money looks set to move first
Canada's six largest banks are jointly exploring Canadian dollar based digital money, starting with a tokenized deposits initiative announced on Tuesday.
The participants are Bank of Montreal, Canadian Imperial Bank of Commerce, National Bank of Canada, Royal Bank of Canada, The Bank of Nova Scotia and TD Bank Group, according to the joint release issued through TD Bank Group.
Other deposit-taking institutions are expected to join at a later point.
Tokenized deposits are traditional bank deposits recorded on a decentralized database or distributed ledger, such as a blockchain, the Canadian Press reported.
The tokens would be issued by commercial banks, and from a legal perspective depositors can treat them the same as traditional bank deposits.
The Banks said the first phase aims to move tokenized deposits efficiently across Canadian financial institutions, with a longer term goal of connecting to other emerging digital assets initiatives.
They describe the work as a response to global developments in digital money, with the stated aim of delivering faster, more efficient and programmable payments while preserving safety, stability, and effective regulatory oversight.
Canadian dollars could be converted into tokens on blockchain for easier transfers, Claire Célérier, Canada Research Chair in household finance at the University of Toronto's Rotman School of Management, told the Canadian Press, with the six banks sharing "the same blockchain."
She called the project "really exploratory," saying it would mainly benefit large companies moving large sums through "more sophisticated transactions."
Large producers could settle accounts far faster than their typical 30-day window, Cristian Bravo, professor and Canada Research Chair in banking and insurance analytics at Western University, said, calling instant settlement a fix for market inefficiency.
He said digital money differs from cryptocurrency, describing it as a "digital ledger to move deposits in a very quick, instant way."
The Office of the Superintendent of Financial Institutions set out its position on September 10, in a statement on tokenized and other digitally represented deposits.
"The underlying technology of a financial product or service does not determine its legal nature. To be clear, we focus on what the product or service is, not how it is built or delivered," the statement reads, adding that tokenized deposits are not legally distinct from traditional deposits.
The Bank of Canada said on its website in June that it, along with other central banks and regulatory authorities, is studying and experimenting with tokenized systems to assess the trade-offs between different use cases.
Its June article described centralized systems as offering the highest performance and lowest transparency, and decentralized permissionless systems as offering the most transparency and the lowest performance.
A bank-led tokenized deposit initiative launched in the United States in June, with The Clearing House operating the program and linking blockchain to existing systems including RTP and CHIPS, Cryptopolitan reported.
