Six Canadian Banks Explore Shared Tokenized Deposit System

Six banks look at a shared Canadian-dollar deposit system

Bank of Montreal, Canadian Imperial Bank of Commerce, National Bank of Canada, Royal Bank of Canada, Scotiabank and TD Bank Group are jointly exploring a shared system for Canadian-dollar tokenized deposits. The banks set out the effort in announcements published by Scotiabank and CIBC on Sept. 22.

The work is still exploratory. The announcements say the first phase "aims to move tokenized deposits efficiently across Canadian financial institutions."

How the banks describe the first phase

• The banks are "exploring" development of the system. The statements do not give a launch date.
• The first phase "aims" to support movement of tokenized deposits between Canadian financial institutions.
• The group expects to add other deposit-taking institutions later.
• Connecting the system with other emerging digital-asset initiatives is described as a "longer term goal."
• The banks say the proposed system is intended to support faster, more efficient and programmable payments.

Canada's regulator says tokenized deposits are still deposits

The announcement came 12 days after Canada's Office of the Superintendent of Financial Institutions clarified that "tokenized deposits are ... not legally distinct from traditional deposits." OSFI said the technology a product is built on does not determine its legal nature.

OSFI added that its statement does not remove other requirements. Financial institutions are still responsible for following applicable laws and guidance, and OSFI expects them to speak with their lead supervisors before launching new products or services.

A similar U.S. plan names an operator and payment rails

The Canadian effort shares the same interbank goal as a U.S. initiative announced in June by The Clearing House, but the U.S. plan offers more detail on how it would work.

The Clearing House said it would operate a system for onchain clearing and settlement of tokenized deposits between banks, with a connectivity layer linking blockchain activity to its RTP and CHIPS payment networks. The planned service would be open to financial institutions across the U.S. The Clearing House says its existing networks clear and settle more than $2 trillion each day.

In an Aug. 24 update, The Clearing House said the U.S. initiative was still being designed. It said the solution would connect tokenized deposits and the underlying U.S. dollars with established payment infrastructure.

What is confirmed

• Six named Canadian banks are exploring a shared CAD tokenized-deposit system, according to statements published Sept. 22 by Scotiabank and CIBC.
• The first phase is aimed at moving tokenized deposits between Canadian financial institutions.
• OSFI said tokenized deposits are not legally distinct from traditional deposits and that technology does not decide legal status.
• The Clearing House said it would run the U.S. system and link it to the RTP and CHIPS networks.

What is still unclear

• The Canadian statements do not name an operator or payment rails for the project, unlike the U.S. plan.
• No timeline is given for when other deposit-taking institutions might join. The group only says it anticipates doing so later.
• Costs, technical partners and a start date for the Canadian project are not stated in the announcements.

What comes after the first phase

The banks say they expect to bring in other deposit-taking institutions later, and that linking the system to other emerging digital-asset initiatives remains a longer-term goal. On the U.S. side, The Clearing House said as of Aug. 24 that its solution was still in the design stage.

Sources

• The Defiant