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  1. Eggs in one basket
    security and convenience of digital currencies
    Autor*in: Kahn, Charles M.; Rivadeneyra, Francisco; Wong, Tsz-Nga
    Erschienen: [2021]
    Verlag:  Bank of Canada, [Ottawa]

    Digital currencies store balances in anonymous electronic addresses. We analyze the tradeoffs between the safety and convenience of aggregating balances in addresses, electronic wallets and banks. In our model, agents balance the risk of theft of a... mehr

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    Digital currencies store balances in anonymous electronic addresses. We analyze the tradeoffs between the safety and convenience of aggregating balances in addresses, electronic wallets and banks. In our model, agents balance the risk of theft of a large account with the cost to safeguarding a large number of passwords for many small accounts. Account custodians (banks, wallets and other payment service providers) have different objectives and trade-offs along these dimensions; we analyze the welfare effects of differing industry structures and interdependencies. In particular, we examine, the consequences of "password aggregation" programs, which, in effect, consolidate risks across accounts.

     
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    hdl: 10419/241229
    Auflage/Ausgabe: Last updated: January 28, 2021
    Schriftenreihe: Staff working paper / Bank of Canada ; 2021, 6
    Schlagworte: Digital currencies and fintech; Financial services; Payment clearing and settlement systems; Central bank research
    Umfang: 1 Online-Ressource (circa 48 Seiten)
  2. Estimating policy functions in payments systems using reinforcement learning
    Autor*in: Castro, Pablo S.; Ajit, Desai; Du, Han; Garratt, Rod; Rivadeneyra, Francisco
    Erschienen: [2021]
    Verlag:  Bank of Canada, [Ottawa]

    This paper uses reinforcement learning (RL) to approximate the policy rules of banks participating in a high-value payments system. The objective of the agents is to learn a policy function for the choice of amount of liquidity provided to the system... mehr

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    This paper uses reinforcement learning (RL) to approximate the policy rules of banks participating in a high-value payments system. The objective of the agents is to learn a policy function for the choice of amount of liquidity provided to the system at the beginning of the day. Individual choices have complex strategic effects precluding a closed form solution of the optimal policy, except in simple cases. We show that in a simplified two-agent setting, agents using reinforcement learning do learn the optimal policy that minimizes the cost of processing their individual payments. We also show that in more complex settings, both agents learn to reduce their liquidity costs. Our results show the applicability of RL to estimate best-response functions in real-world strategic games.

     
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    hdl: 10419/241230
    Auflage/Ausgabe: Last updated: February 1, 2021
    Schriftenreihe: Staff working paper / Bank of Canada ; 2021, 7
    Schlagworte: Payment clearing and settlement systems; Digital currencies and fintech; Financialsystem regulation and policies; Financial institutions
    Umfang: 1 Online-Ressource (circa 42 Seiten), Illustrationen
  3. Behaviour in the Canadian large-value payment system
    COVID-19 vs. the global financial crisis
    Autor*in: Chaudhry, Alexander; Kosse, Anneke; Sondergard, Karen
    Erschienen: [2021]
    Verlag:  Bank of Canada, [Ottawa, ON]

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    Auflage/Ausgabe: Last updated: May 6, 2021
    Schriftenreihe: Staff analytical note / Bank of Canada ; 2021, 7
    Schlagworte: Clearing; Coronavirus; Finanzkrise; Kanada; Coronavirus disease (COVID-19); Financial institutions; Financial stability; Payment clearing and settlement systems
    Umfang: 1 Online-Ressource (circa 14 Seiten), Illustrationen
  4. Payment habits during COVID-19
    evidence from high-frequency transaction data
    Autor*in: Dahlhaus, Tatjana; Welte, Angelika
    Erschienen: [2021]
    Verlag:  Bank of Canada, [Ottawa]

    We investigate how the COVID-19 pandemic has changed consumers' payments habits in Canada. We rely on high-frequency data on cash withdrawals and debit card transactions from Interac Corp. and Canada's Automated Clearing Settlement System. We... mehr

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    We investigate how the COVID-19 pandemic has changed consumers' payments habits in Canada. We rely on high-frequency data on cash withdrawals and debit card transactions from Interac Corp. and Canada's Automated Clearing Settlement System. We construct daily measures of payment habits reflecting cash usage, average transaction values, and the share of transactions in which the customer or card holder and the acquiring machine (ATM or POS) are of the same bank. Using simple dummy regressions and local projection models, we assess how these indicators of payment habits have changed with the evolution of the COVID-19 pandemic. We find evidence that during the pandemic consumers adjusted their behaviour by avoiding frequent trips for cash withdrawals and point-of-sale purchases and making fewer transactions for higher amounts. They also made smaller-value cash withdrawals compared with the value of card payments, which could reflect a reduced use of cash for point-of-sale transactions. Consumers also made relatively more withdrawals from ATMs that are linked to their financial institution (on-us transactions). Finally, we highlight that estimates of economic activity based on card data alone could be biased if shifts in payment habits are not taken into account. We estimate that debit card payments might have overstated consumer expenditure growth by up to 7 percentage points over the course of the pandemic.

     
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    hdl: 10419/247423
    Auflage/Ausgabe: Last updated: September 9, 2021
    Schriftenreihe: Staff working paper / Bank of Canada ; 2021, 43
    Schlagworte: Coronavirus disease (COVID-19); Payment clearing and settlement systems; Recenteconomic and financial developments; Domestic demand and components
    Umfang: 1 Online-Ressource (circa 35 Seiten), Illustrationen
  5. Distributional effects of payment card pricing and merchant cost pass-through in Canada and the United States
    Autor*in: Felt, Marie-Hélène; Hayashi, Fumiko; Stavins, Joanna; Welte, Angelika
    Erschienen: [2021]
    Verlag:  Bank of Canada, [Ottawa]

    Using data from Canada and the United States, we quantify consumers' net pecuniary cost of using cash, credit cards, and debit cards for purchases across income cohorts. The net cost includes fees paid to financial institutions, rewards received from... mehr

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    Using data from Canada and the United States, we quantify consumers' net pecuniary cost of using cash, credit cards, and debit cards for purchases across income cohorts. The net cost includes fees paid to financial institutions, rewards received from credit or debit card issuers, and the merchant cost of accepting payments that is passed on to consumers as higher retail prices. Even though credit cards are more expensive for merchants to accept compared with other payment methods, merchants typically do not differentiate prices at checkout, but instead pass through their costs to all consumers. As a result, credit card transactions are cross-subsidized by cheaper debit and cash payments. Card rewards and consumer fees paid to financial institutions are additional sources of cross-subsidies. We find that consumers in the lowest-income cohort pay the highest net pecuniary cost as a percentage of transaction value, while consumers in the highest-income cohort pay the lowest. This result is robust under various scenarios and assumptions, suggesting payment card pricing and merchant cost pass-through have regressive distributional effects in Canada and the United States.

     
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    hdl: 10419/241231
    Auflage/Ausgabe: Last updated: February 5, 2021
    Schriftenreihe: Staff working paper / Bank of Canada ; 2021, 8
    Schlagworte: Bank notes; Financial institutions; Financial services; Market structure and pricing; Payment clearing and settlement systems
    Umfang: 1 Online-Ressource (circa 68 Seiten), Illustrationen
  6. An exploration of First Nations reserves and access to cash
    Autor*in: Chen, Heng; Engert, Walter; Huynh, Kim P.; O'Habib, Daneal
    Erschienen: [2021]
    Verlag:  Bank of Canada, Ottawa, Ontario, Canada

    Providing bank notes is one of the Bank of Canada’s core functions. The Bank is therefore interested in whether cash is adequately distributed across society, and this also influences the Bank’s thinking on issuing a central bank digital currency. We... mehr

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    Providing bank notes is one of the Bank of Canada’s core functions. The Bank is therefore interested in whether cash is adequately distributed across society, and this also influences the Bank’s thinking on issuing a central bank digital currency. We provide a perspective on these issues by exploring access of First Nations reserves to cash. To do so, we measure the distance between the 637 reserve band offices in Canada and their closest cash sources. In this study, these cash sources are branches of financial institutions (FIs), automated bank machines (ABMs) owned by FIs, and white label ABMs. We measure the distance between band offices and cash sources by geographical distance (“as the crow flies”) and by travel distance (e.g., road routes). We also provide some information on access to financial services more generally and set out questions for future research.

     
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    hdl: 10419/241100
    Schriftenreihe: Staff discussion paper / Bank of Canada ; 2021, 8
    Schlagworte: Bank notes; Digital currencies and fintech; Financial institutions; Financial services; Payment clearing and settlement systems
    Umfang: 1 Online-Ressource (circa 29 Seiten), Illustrationen
  7. Using payments data to nowcast macroeconomic variables during the onset of COVID-19
    Autor*in: Chapman, James; Desai, Ajit
    Erschienen: [2021]
    Verlag:  Bank of Canada, [Ottawa]

    The COVID-19 pandemic and the resulting public health mitigation have caused large-scale economic disruptions globally. During this time, there is an increased need to predict the macroeconomy's short-term dynamics to ensure the effective... mehr

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    The COVID-19 pandemic and the resulting public health mitigation have caused large-scale economic disruptions globally. During this time, there is an increased need to predict the macroeconomy's short-term dynamics to ensure the effective implementation of fiscal and monetary policy. However, economic prediction during a crisis is challenging because of the unprecedented economic impact, which increases the unreliability of traditionally used linear models that use lagged data. We help address these challenges by using timely retail payments system data in linear and nonlinear machine learning models. We find that compared to a benchmark, our model has a roughly 15 to 45% reduction in Root Mean Square Error when used for macroeconomic nowcasting during the global financial crisis. For nowcasting during the COVID-19 shock, our model predictions are much closer to the official estimates.

     
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    hdl: 10419/241225
    Auflage/Ausgabe: Last updated: January 21, 2021
    Schriftenreihe: Staff working paper / Bank of Canada ; 2021, 2
    Schlagworte: Econometric and statistical methods; Payment clearing and settlement systems
    Umfang: 1 Online-Ressource (circa 43 Seiten), Illustrationen
  8. Payments on digital platforms
    resiliency, interoperability and welfare
    Autor*in: Chiu, Jonathan; Wong, Tsz-Nga
    Erschienen: [2021]
    Verlag:  Bank of Canada, [Ottawa]

    Digital platforms, such as Alibaba and Amazon, operate an online marketplace to facilitate transactions. This paper studies a platform's business model choice between accepting cash and issuing tokens, as well as the implications for welfare,... mehr

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    Digital platforms, such as Alibaba and Amazon, operate an online marketplace to facilitate transactions. This paper studies a platform's business model choice between accepting cash and issuing tokens, as well as the implications for welfare, resiliency, and interoperability. A cash platform free rides on the existing payment infrastructure and profits from collecting transaction fees. A token platform earns seigniorage, albeit bearing the costs of setting up the system and holding reserves to mitigate the cyber risk. Tokens earn consumers a return, insulating transactions from the liquidity costs of using cash, but also expose them to the remaining cyber risk. The platform issues tokens if the interest rate is high, the platform scope is large, and the cyber risk is small. Unbacked floating tokens with zero transaction fees or interest-bearing stablecoins can implement the equilibrium business model, which is not necessarily socially optimal because the platform does not internalize its impacts on offplatform activities. The model explains why Amazon does not issue tokens but Alipay issues tokens circulatable outside its Alibaba platforms. Regulations such as a minimum reserve requirement can reduce welfare.

     
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    hdl: 10419/241242
    Auflage/Ausgabe: Last updated: April 22, 2021
    Schriftenreihe: Staff working paper / Bank of Canada ; 2021, 19
    Schlagworte: Digital currencies and fintech; Monetary policy; Payment clearing and settlement systems
    Umfang: 1 Online-Ressource (circa 41 Seiten)
  9. Stablecoin assessment framework
    Autor*in: García, Alejandro; Lands, Bena; Yanchus, Dennis
    Erschienen: [2021]
    Verlag:  Bank of Canada, Ottawa, Ontario, Canada

    We outline a three-step framework to investigate stablecoin arrangements and quantitatively assess their risk. The first step is to classify the stablecoin arrangement into three parts-coin structure, transfer system(s) and financial service(s) - and... mehr

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    We outline a three-step framework to investigate stablecoin arrangements and quantitatively assess their risk. The first step is to classify the stablecoin arrangement into three parts-coin structure, transfer system(s) and financial service(s) - and categorize the attributes of each part. The second step is to identify specific risk scenarios. The third is to quantify the range of probable loss and range of possible frequency associated with the identified risk scenarios. Our proposed framework allows authorities to understand the defining characteristics of stablecoin arrangements, to be specific about any concerns they may have, and to be objective in their treatment from issuer to issuer. Additionally, the process we are proposing ensures that authorities and the stablecoin issuer can come to a quantitatively based understanding about the potential risks. The main contributions we make are to separate stablecoins arrangements into three activity-based components and to apply an operational risk management approach to quantifying risks of stablecoins.

     
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    hdl: 10419/241098
    Schriftenreihe: Staff discussion paper / Bank of Canada ; 2021, 6
    Schlagworte: Digital currencies and fintech; financial institutions; Financial system regulation and policies; Financial markets; Payment clearing and settlement systems
    Umfang: 1 Online-Ressource (circa 25 Seiten), Illustrationen
  10. What drives Bitcoin fees?
    using Segwit to assess Bitcoin's long-run sustainability
    Autor*in: Brown, Colin M.; Chiu, Jonathan; Koeppl, Thorsten V.
    Erschienen: [2022]
    Verlag:  Bank of Canada, [Ottawa]

    Can Bitcoin remain tamper proof in the long run? We use block-level data from the Bitcoin blockchain to estimate the impact of congestion and the USD price on fee rates. The introduction and adoption of the Segwit protocol allows us to identify an... mehr

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    Can Bitcoin remain tamper proof in the long run? We use block-level data from the Bitcoin blockchain to estimate the impact of congestion and the USD price on fee rates. The introduction and adoption of the Segwit protocol allows us to identify an aggregate demand curve for bitcoin transactions. We find that Segwit has reduced fee revenue by about 70%. Fee revenue could be maximized at a block size of about 0.6 MB when Segwit adoption remains at current levels. At this block size, maximum fee revenue would be equivalent to 1/8 of the current average block reward. Hence, large sustained price increases are required to keep mining rewards constant in the long run.

     
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    hdl: 10419/261255
    Auflage/Ausgabe: Last updated: January 10, 2022
    Schriftenreihe: Staff working paper / Bank of Canada ; 2022, 2
    Schlagworte: Digital currencies and fintech; Payment clearing and settlement systems
    Umfang: 1 Online-Ressource (circa 39 Seiten), Illustrationen
  11. Identifying financially remote First Nations reserves
    Autor*in: Chen, Heng; Engert, Walter; Huynh, Kim P.; O'Habib, Daneal
    Erschienen: [2022]
    Verlag:  Bank of Canada, Ottawa, Ontario, Canada

    Chen et al. (2021) show that almost one-third of First Nations band offices in Canada are within 1 kilometre (km) of an automated banking machine (ABM) or financial institution (FI) branch and more than half are within 5 km. Further, over... mehr

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    Chen et al. (2021) show that almost one-third of First Nations band offices in Canada are within 1 kilometre (km) of an automated banking machine (ABM) or financial institution (FI) branch and more than half are within 5 km. Further, over three-quarters of band offices are within 20 km of an ABM or FI branch and almost 90% are within 50 km. We focus on 49 First Nations locations that are more than 100 km away from an ABM or FI branch or do not have an identifiable travel route (by road or boat) to an ABM or FI branch. We refer to these First Nations as financially remote. We show that these locations have small populations and limited access to internet and mobile services. As a result, these First Nations have poor access to cash sources and physical delivery of financial services as well as limited access to digital payments and electronic banking. We also assess the remoteness of these locations according to an alternative method based on measures of agglomeration (community population) and proximity to other communities. We find that, according to this measure, these 49 financially remote First Nations are generally among the most geographically remote communities in Canada. Further, we show that these First Nations are also among the lowest scoring communities in Canada according to a measure of community well-being based on indicators of educational attainment, labour force activity, income and housing. The geographical remoteness of these 49 First Nations, their small populations, limited infrastructure and digital services, and relatively low community well-being all likely contribute to their poor access to cash and financial services.

     
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    hdl: 10419/266072
    Schriftenreihe: Staff discussion paper / Bank of Canada ; 2022, 11
    Schlagworte: Bank notes; Digital currencies and fintech; Financial institutions; Financial services; Payment clearing and settlement systems
    Umfang: 1 Online-Ressource (circa 24 Seiten), Illustrationen
  12. PayTech and the d(ata) n(etwork) a(ctivities) of BigTech platforms
    Autor*in: Chiu, Jonathan; Koeppl, Thorsten V.
    Erschienen: [2022]
    Verlag:  Bank of Canada, [Ottawa]

    Why do BigTech platforms introduce payment services? Digital platforms often run business models where activities on the platform generate data that can be monetized off the platform. There is a trade-off between the value of such data and the... mehr

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    Why do BigTech platforms introduce payment services? Digital platforms often run business models where activities on the platform generate data that can be monetized off the platform. There is a trade-off between the value of such data and the privacy concerns of users, since platforms need to compensate users for their privacy loss by subsidizing activities. The nature of complementarities between data and payments determines whether and how payment services are provided. When data help to provide better payments (data-driven payments), platforms have too little incentive to adopt. When payments generate additional data (payments-driven data), platforms may adopt payments inefficiently.

     
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    hdl: 10419/272979
    Auflage/Ausgabe: Last updated: August 3, 2022
    Schriftenreihe: Staff working paper / Bank of Canada ; 2022, 35
    Schlagworte: Digital currencies and fintech; Payment clearing and settlement systems
    Umfang: 1 Online-Ressource (circa 41 Seiten), Illustrationen
  13. Grasping de(centralized) fi(nance) through the lens of economic theory
    Autor*in: Chiu, Jonathan; Kahn, Charles M.; Koeppl, Thorsten V.
    Erschienen: [2022]
    Verlag:  Bank of Canada, [Ottawa]

    In this article, we use a simple stylized model of collateralized lending to analyze the value proposition and limitations of decentralized finance (DeFi). DeFi uses a decentralized ledger to run smart contracts that automatically enforce the terms... mehr

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    In this article, we use a simple stylized model of collateralized lending to analyze the value proposition and limitations of decentralized finance (DeFi). DeFi uses a decentralized ledger to run smart contracts that automatically enforce the terms of a lending contract and safeguard the collateral. DeFi can lower the costs associated with intermediated lending and improve financial inclusion. Limitations are the volatility of the crypto collateral and stablecoins used for settlement, the possible incompleteness of smart contracts and the lack of a reliable oracle. A proper infrastructure reducing such limitations could improve the value of DeFi.

     
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    hdl: 10419/272987
    Auflage/Ausgabe: Last updated: October 11, 2022
    Schriftenreihe: Staff working paper / Bank of Canada ; 2022, 43
    Schlagworte: Virtuelle Währung; Kreditgeschäft; Kreditrationierung; Kreditmarkt; Theorie; Digital currencies and fintech; Payment clearing and settlement systems
    Umfang: 1 Online-Ressource (circa 35 Seiten), Illustrationen
  14. Improving the efficiency of payments systems using quantum computing
    Autor*in: McMahon, Christopher; McGillivray, Donald; Desai, Ajit; Rivadeneyra, Francisco; Lam, Jean-Paul; Lo, Thomas; Marsden, Danica; Skavysh, Vladimir
    Erschienen: [2022]
    Verlag:  Bank of Canada, [Ottawa]

    High-value payment systems (HVPSs) are typically liquidity-intensive because the payment requests are indivisible and settled on a gross basis. Finding the right order in which payments should be processed to maximize the liquidity efficiency of... mehr

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    High-value payment systems (HVPSs) are typically liquidity-intensive because the payment requests are indivisible and settled on a gross basis. Finding the right order in which payments should be processed to maximize the liquidity efficiency of these systems is an NP-hard combinatorial optimization problem, which quantum algorithms may be able to tackle at meaningful scales. We develop an algorithm and run it on a hybrid quantum annealing solver to find an ordering of payments that reduces the amount of system liquidity necessary without substantially increasing payment delays. Despite the limitations in size and speed of today's quantum computers, our algorithm provides quantifiable efficiency improvements when applied to the Canadian HVPS using a 30-day sample of transaction data. By reordering each batch of 70 payments as they enter the queue, we achieve an average of Can $ 240 million in daily liquidity savings, with a settlement delay of approximately 90 seconds. For a few days in the sample, the liquidity savings exceed Can $ 1 billion. This algorithm could be incorporated as a centralized preprocessor into existing HVPSs without entailing a fundamental change to their risk management models.

     
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    Auflage/Ausgabe: Last updated: December 22, 2022
    Schriftenreihe: Staff working paper / Bank of Canada ; 2022, 53
    Schlagworte: Digital currencies and fintech; Financial institutions; Financial services; Financial system regulation and policies; Payment clearing and settlement systems
    Umfang: 1 Online-Ressource (circa 26 Seiten), Illustrationen
  15. Simulating intraday transactions in the Canadian retail batch system
    Autor*in: Zhang, Nellie
    Erschienen: [2023]
    Verlag:  Bank of Canada, [Ottawa]

    This paper proposes a unique approach to simulate intraday transactions in the Canadian retail payments batch system. Such transactions are currently unobtainable. The simulation procedure, though demonstrated in the realm of payments systems, has... mehr

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    This paper proposes a unique approach to simulate intraday transactions in the Canadian retail payments batch system. Such transactions are currently unobtainable. The simulation procedure, though demonstrated in the realm of payments systems, has tremendous potential for helping with data-deficient problems where only high-level aggregate information is available. The approach uses the concept of integer composition in combinatorics to break down the daily total value and volume (available) into individual data points (unavailable) throughout the day. The algorithm also introduces a technique to incorporate any intraday timing pattern (known or hypothetical) to make simulated data closer to reality. Simulation results show that the probability distribution of individual payment values is remarkably stable through repeated random sampling. This suggests a high degree of accuracy and viability of this simulation method. In addition, the densities of simulated intraday transactions are found to be invariably skewed to the left of the mean payment value, which reflects the nature of retail payments systems.

     
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    Auflage/Ausgabe: Last updated: January 4, 2023
    Schriftenreihe: Staff working paper / Bank of Canada ; 2023, 1
    Schlagworte: Financial Markets; Payment clearing and settlement systems
    Umfang: 1 Online-Ressource (circa 31 Seiten), Illustrationen
  16. Transmission of cyber risk through the Canadian wholesale payments system
    Autor*in: Kosse, Anneke; Lu, Zhentong
    Erschienen: [2022]
    Verlag:  Bank of Canada, [Ottawa]

    In this paper, we study how the impact of a cyber-attack that paralyzes one or multiple banks' ability to send payments would transmit to other banks through the Canadian wholesale payments system. Based on historical payment data, we simulate a wide... mehr

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    In this paper, we study how the impact of a cyber-attack that paralyzes one or multiple banks' ability to send payments would transmit to other banks through the Canadian wholesale payments system. Based on historical payment data, we simulate a wide range of scenarios and evaluate the total payment disruption in the system. We find that depending on the type and number of banks under attack, the time of the attack and the design of the payments system, the attack can quickly become systemic and result in a significant loss of liquidity in the system. For instance, a three-hour attack on one bank can in the worst case impair the payments capacity of seven other banks within less than an hour and eventually disrupt 25% of the daily payments value. We also demonstrate that the system-wide impact of an attack can be significantly reduced by contingency plans that enable attacked banks to still send high-value payments. Given the interconnectedness of banks, we conclude that the cyber-resilience of a wholesale payment system strongly depends on the cyber-resilience of its participants and underline the importance of strong sectoral collaboration and coordination.

     
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    Auflage/Ausgabe: Last updated: May 16, 2022
    Schriftenreihe: Staff working paper / Bank of Canada ; 2022, 23
    Schlagworte: Payment clearing and settlement systems; Financial institutions; Financial stability
    Umfang: 1 Online-Ressource (circa 36 Seiten), Illustrationen
  17. The relative benefits and risks of stablecoins as a means of payment
    a case study perspective
    Autor*in: Ho, Annetta; Darbha, Sriram; Gorelkina, Yuliya; García, Alejandro
    Erschienen: [2022]
    Verlag:  Bank of Canada, Ottawa, Ontario, Canada

    Our paper contributes to the discussion about the utility of stablecoins for retail payments through an objective, evidence-based approach that compares stablecoins with traditional retail payment methods. The paper also provides insights that could... mehr

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    Our paper contributes to the discussion about the utility of stablecoins for retail payments through an objective, evidence-based approach that compares stablecoins with traditional retail payment methods. The paper also provides insights that could be useful in the design of central bank digital currencies. We identify the potential benefits, risks and costs of stablecoin arrangements used for retail payments relative to traditional retail payment methods. We select three real-world examples for comparison: (i) a Mastercard credit card payment through a traditional bank; (ii) a Unified Payments Interface fast payment through Paytm (a technology-enabled payments company regulated as a limited-purpose bank); and (iii) a stablecoin retail transaction using USD Coin and a BitPay wallet. We find that certain stablecoin arrangements offer end users greater control of their privacy, facilitate more rapid innovation and have the potential to increase transaction speeds, particularly for cross-border payments. At the same time, stablecoins may provide less consumer protection for fraud, present higher risks to the payment system and to efforts to combat financial crime (partly because of the more nascent regulatory framework), and be costlier relative to traditional payment arrangements. Our findings suggest that stablecoin arrangements do not currently serve as substitutes for the suite of traditional payment arrangements but instead address niche use cases or user segments that value their benefits and can accept their risks or costs.

     
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    Schriftenreihe: Staff discussion paper / Bank of Canada ; 2022, 21
    Schlagworte: Digital currencies and fintech; Payment clearing and settlement systems
    Umfang: 1 Online-Ressource (circa 48 Seiten), Illustrationen
  18. Reviewing Canada's monetary policy implementation system
    does the evolving environment support maintaining a floor system?
    Autor*in: Gravelle, Toni; Morrow, Ron; Witmer, Jonathan
    Erschienen: [2023]
    Verlag:  Bank of Canada, Ottawa, Ontario, Canada

    At the onset of the pandemic, the Bank of Canada transitioned its framework for monetary policy implementation from a corridor system to a floor system, which it has since decided to maintain. This decision was informed by the analysis and assessment... mehr

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    At the onset of the pandemic, the Bank of Canada transitioned its framework for monetary policy implementation from a corridor system to a floor system, which it has since decided to maintain. This decision was informed by the analysis and assessment of the two frameworks in this paper. We provide a comprehensive analysis of both frameworks and assess their relative merits based on five key criteria that define a sound framework. Our evaluation includes a discussion of how these relative merits have changed since the pandemic began. Specifically, we examine the evolving regulatory landscape, changes in payment systems, and the Bank's quantitative easing program to understand their implications for the relative strengths of the two frameworks for monetary policy implementation.

     
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    Schriftenreihe: Staff discussion paper / Bank of Canada ; 2023, 10
    Schlagworte: Monetary policy implementation; Payment clearing and settlement systems; Market structure and pricing
    Umfang: 1 Online-Ressource (circa 23 Seiten), Illustrationen
  19. Estimating the appropriate quantity of settlement balances in a floor system
    Autor*in: Bulusu, Narayan; McNeely, Matthew; McRae, Kaetlynd; Witmer, Jonathan
    Erschienen: [2023]
    Verlag:  Bank of Canada, [Ottawa]

    In April 2022, the Bank of Canada announced that it would continue to use a floor system to implement monetary policy by providing a sufficiently large quantity of settlement balances to enable the overnight repo rate to trade at close to the deposit... mehr

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    In April 2022, the Bank of Canada announced that it would continue to use a floor system to implement monetary policy by providing a sufficiently large quantity of settlement balances to enable the overnight repo rate to trade at close to the deposit rate. In contrast, the Bank's guiding principles of prudence, transparency and neutrality, which govern the management of its balance sheet, favour maintaining settlement balances as low as possible. In this context, this paper describes two complementary approaches to estimating the appropriate quantity of settlement balances needed to effectively maintain a floor system. The first is a regressionbased analysis to estimate the quantity required to maintain the overnight repo rate close to the Bank's policy interest rate (which is equal to the deposit rate in a floor system). The second is an analysis of operational considerations in implementing a floor system in Canada. Both approaches highlight that considerable uncertainty exists in determining the demand for settlement balances. Such uncertainty emphasizes the need for the Bank to monitor money market conditions as it continues to normalize its balance sheet after undertaking quantitative easing operations related to the COVID-19 pandemic.

     
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    Schriftenreihe: Staff discussion paper / Bank of Canada ; 2023, 26
    Schlagworte: Financial institutions; Financial markets; Financial system regulation and policies; Monetary policy implementation; Payment clearing and settlement systems
    Umfang: 1 Online-Ressource (circa 21 Seiten), Illustrationen
  20. Privacy-preserving post-quantum credentials for digital payments
    Autor*in: Kazmi, Raza Ali; Le, Duc-Phong; Minwalla, Cyrus
    Erschienen: [2023]
    Verlag:  Bank of Canada, [Ottawa]

    Digital payments and decentralized systems enable the creation of new financial products and services for users. One core challenge in digital payments is the need to protect users from fraud and abuse while retaining privacy in individual... mehr

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    Digital payments and decentralized systems enable the creation of new financial products and services for users. One core challenge in digital payments is the need to protect users from fraud and abuse while retaining privacy in individual transactions. We propose a pseudonymous credential scheme for use in payment systems to tackle this problem. The scheme is privacy-preserving, efficient for practical applications, and hardened against quantum computing attacks. We present a constant-round, interactive, zero-knowledge proof of knowledge (ZKPOK) that relies on a one-way function and an asymmetric encryption primitive-both of which need to support at most one homomorphic addition. The scheme is implemented with SWIFFT as a post-quantum one-way function and ring learning with errors as a post-quantum asymmetric encryption primitive, with the protocol deriving its quantum-hardness from the properties of the underlying primitives. We evaluate the performance of the ZKPOK instantiated with the chosen primitive and find that a memory footprint of 85 KB is needed to achieve 200 bits of security. Comparison reveals that our scheme is more efficient than equivalent, state-of-the-art post-quantum schemes. A practical and interactive credential mechanism was constructed from the proposed building blocks, in which users are issued pseudonymous credentials against their personally identifiable information that can be used to register with financial service providers without revealing personal information. The protocol is shown to be secure and free of information leakage, preserving the user's privacy regardless of the number of registrations.

     
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    Auflage/Ausgabe: Last updated: June 9, 2023
    Schriftenreihe: Staff working paper / Bank of Canada ; 2023, 33
    Schlagworte: Central bank research; Digital currencies and fintech; Payment clearing and settlement systems
    Umfang: 1 Online-Ressource (circa 22 Seiten), Illustrationen
  21. Anonymous credentials
    secret-free and quantum-safe
    Autor*in: Kazmi, Raza Ali; Minwalla, Cyrus
    Erschienen: [2023]
    Verlag:  Bank of Canada, [Ottawa]

    An anonymous credential mechanism is a set of protocols that allows users to obtain credentials from an organization and demonstrate ownership of these credentials without compromising users' privacy. In this work, we construct the first secret-free... mehr

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    An anonymous credential mechanism is a set of protocols that allows users to obtain credentials from an organization and demonstrate ownership of these credentials without compromising users' privacy. In this work, we construct the first secret-free and quantum-safe credential mechanism. The scheme is secret-free in the sense that an organization does not need to guard a secret key. The scheme is also lightweight in construction. Security of the scheme relies on the ability of the organization to maintain the integrity of a publicly known data structure-namely, a Merkle tree-that utilizes a quantum-safe, partially homomorphic hash function as a foundational primitive. We also construct a simple, quantum-safe, zero-knowledge argument of knowledge of membership in the Merkle tree. Additionally, we explore a concrete instantiation of the scheme and show it to be practically efficient for the core functions of enrollment and verification.

     
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    Auflage/Ausgabe: Last updated: September 28, 2023
    Schriftenreihe: Staff working paper / Bank of Canada ; 2023, 50
    Schlagworte: Central bank research; Digital currencies and fintech; Payment clearing and settlement systems
    Umfang: 1 Online-Ressource (circa 17 Seiten), Illustrationen
  22. Understanding DeFi through the lens of a production-network model
    Autor*in: Chiu, Jonathan; Koeppl, Thorsten V.; Yu, Hanna; Zhang, Shengxing
    Erschienen: [2023]
    Verlag:  Bank of Canada, [Ottawa]

    Decentralized finance (DeFi) is composed of a variety of heterogeneous sectors that are interconnected through an input-output network of its tokens. We first use a panel data set to empirically document the evolution of the DeFi network across its... mehr

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    Decentralized finance (DeFi) is composed of a variety of heterogeneous sectors that are interconnected through an input-output network of its tokens. We first use a panel data set to empirically document the evolution of the DeFi network across its different sectors. Instead of looking at the misleading measure of total value locked, we then employ a standard, theoretical production-network model to measure the value added and service outputs of the different DeFi sectors. Finally, based on a calibrated version of our model, we study which factors drive DeFi token prices and predict the equilibrium effects when network interconnectedness increases.

     
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    Auflage/Ausgabe: Last updated: August 15, 2023
    Schriftenreihe: Staff working paper / Bank of Canada ; 2023, 42
    Schlagworte: Digital currencies and fintech; Payment clearing and settlement systems
    Umfang: 1 Online-Ressource (circa 39 Seiten), Illustrationen
  23. From LVTS to Lynx
    quantitative assessment of payment system transition
    Autor*in: Desai, Ajit; Lu, Zhentong; Rodrigo, Hiru; Sharples, Jacob; Tian, Phoebe; Zhang, Nellie
    Erschienen: [2023]
    Verlag:  Bank of Canada, [Ottawa]

    Modernizing Canada's wholesale payments system to Lynx from the Large Value Transfer System (LVTS) brings two key changes: (1) the settlement model shifts from a hybrid system that combined components of both real-time gross settlement (RTGS) and... mehr

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    Modernizing Canada's wholesale payments system to Lynx from the Large Value Transfer System (LVTS) brings two key changes: (1) the settlement model shifts from a hybrid system that combined components of both real-time gross settlement (RTGS) and deferred net settlement (DNS) to an RTGS system; (2) the policy regarding queue usage changes from discouraging it to encouraging the adoption of the new liquidity-saving mechanism. We utilize this unique opportunity to quantitatively assess the effects of those changes on the behaviour of participants in the high-value payments system. Our analysis reveals the following: (1) At the system level, most payments are settled in a single stream with the liquidity-savings mechanism in Lynx-facilitating liquidity pooling and leading to higher efficiency than LVTS where payments were distributed in two streams. Moreover, due to Lynx's liquidity-saving mechanism, many payments arrive earlier than those in LVTS, providing more opportunities for liquidity saving at the cost of slightly increased payment delay. (2) At the participant level, the responses are rather heterogeneous; however, our analysis suggests that liquidity efficiency is improved for several participants, and most experience slightly longer payment delays in Lynx than in LVTS.

     
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    Auflage/Ausgabe: Last updated: April 14, 2023
    Schriftenreihe: Staff working paper / Bank of Canada ; 2023, 24
    Schlagworte: Financial institutions; Financial services; Financial system regulation and policies; Payment clearing and settlement systems
    Umfang: 1 Online-Ressource (circa 28 Seiten), Illustrationen
  24. How banks create gridlock to save liquidity in Canada's large value payment system
    Autor*in: Garratt, Rod; Lu, Zhentong; Tian, Phoebe
    Erschienen: [2023]
    Verlag:  Bank of Canada, [Ottawa]

    Using detailed data from Canada's new high-value payment system (HVPS), we show how participants of the system save liquidity by exploiting the new gridlock resolution arrangement. These observed behaviors are consistent with the equilibrium of a... mehr

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    Using detailed data from Canada's new high-value payment system (HVPS), we show how participants of the system save liquidity by exploiting the new gridlock resolution arrangement. These observed behaviors are consistent with the equilibrium of a "gridlock game" that captures the key incentives that participants face in the system. The findings have important implications for the design of HVPSs and shed light on financial institutions' liquidity preference.

     
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    Auflage/Ausgabe: Last updated: May 4, 2023
    Schriftenreihe: Staff working paper / Bank of Canada ; 2023, 26
    Schlagworte: Financial institutions; Payment clearing and settlement systems
    Umfang: 1 Online-Ressource (circa 45 Seiten), Illustrationen