Collaboration between the public and private sector can pave the way for developing a modernized, distributed ledger technology-based (DLT) payment system in Canada, according to recent results of Phase II of Project Jasper, an experimental wholesale interbank payment system that uses a digital fiat currency called Cad-Coin.
Project Jasper, which is a collaboration between the Bank of Canada, Payments Canada, R3, and Canada’s seven commercial banks, launched in 2015 with the goal of understanding how DLT, such as blockchain, can change the future of payments in Canada by developing a wholesale payment system built on DLT. The project has gone through two experimentation phases to date, and its work has been summarized in the recent report, “Project Jasper: Are Distributed Wholesale Payment Systems Feasible Yet?”
“It became obvious that we needed to explore this technology, learn this technology, and potentially understand how it may implicate our financial market infrastructure.”
Phase I of Project Jasper used an Ethereum platform for building a DLT prototype and proof-of-concept system to investigate the use of digital receipts issued by the central bank, instead of cash to support the settlement of payments. Phase II built a DLT prototype using R3’s open source distributed ledger platform, Corda, to further explore the technology. Specifically, Phase II looked at how DLT could change the way centralized systems are structured and operated, whether a DLT system could meet international standards, and any potential implications for payment system policy.
“It became obvious that we needed to explore this technology, learn this technology, and potentially understand how it may implicate our financial market infrastructure,” said Andrew McCormack, senior director of technology at Payments Canada, on a panel at The Payments Canada Summit last week. “We really used [this project] as an opportunity to collaborate with industry. The scope of our work is very much to take this blockchain distributed ledger architecture and apply it to the high-value payments space.”
One of Project Jasper’s key findings was that the versions of DLT currently available may not provide an overall benefit to financial market infrastructures, when compared with centralized systems for interbank payments.
“Under the current technological platforms, it doesn’t really seem that a DLT-based system is going to be better or dominate the more centralized systems,” said Grahame Johnson, chief of funds management and banking department at the Bank of Canada. “For a standalone high-value payments system, under the currently technology platforms, DLT’s probably not going to push the current systems out of the way.”
Three major enterprise #DLT platforms on stage at once! @PaymentsCanada @inside_r3 @IBMBlockchain @ConsenSysLLC #PayCanSummit pic.twitter.com/dnFJHS7CCG
— The SUMMIT (@thesummit) May 26, 2017
Project Jasper Phase II’s results also indicated that to establish a strong payments system with DLT, financial players in the public and private sector will have to overcome several hurdles and gaps related to scalability and the need for privacy — something that can be done with greater collaboration between the sectors.
“DLT is pretty new and pretty exciting technology that…can have a very significant impact on the broader financial system, so this gives us a chance to work with it,” said Johnson. “This project was a great success, both phases of it. Probably the biggest was just the lesson of how effective the public, private sector collaboration is.”
While the project findings indicate some clear challenges, they also suggest that a DLT-based payments system could result in more cost savings and efficiency gains.
“Distributed ledger platforms offer potential cost savings by lowering the costs of reconciliation,” Project Jasper’s organizers wrote in its findings. “If a DLT-based system allows banks to validate their transactions at the very beginning, it could reduce back-office reconciliation work and potentially achieve major cost savings for the financial sector.”
Andrew Irvine, head of business banking at BMO Financial Group and a panelist at The Payments Canada Summit, noted that “it’s a privilege” that Canadians are conducted leading-edge research on DLT through Project Jasper.
“It’s likely that there’s going to be some benefit in its ability to link with other FMIs or other aspects on other ledgers and sort of work operability.”
“It’s a real privilege to be doing some of this work right here in Canada and [it’s] really leading edge thinking in terms of DLT applications and how DLT solutions can actually potentially deliver on use cases that we see in the transfer of value across financial asset classes,” said Irvine. “Thinking how we can take DLT applications…and build it in a way that has real relevance to how we need to transact in some of the financial ecosystems that exist today. I think [it’s] very interesting and the fact that Canada is leading some of the thinking is excellent.”
Overall, the work on Project Jasper suggests there is an opportunity to conduct future research on distributed ledger technologies, such as exploring the integration between Project Jasper and other types of DLT-based financial market infrastructures, including in international markets.
“It did open up a whole bunch of new avenues for further work,” said Johnson. “The strength isn’t really in a standalone system, it’s likely that there’s going to be some benefit in its ability to link with other FMIs or other aspects on other ledgers and sort of work operability.”
Full findings of Project Jasper can be found here.