Six banks and a tokenised deposit

Canada's six largest banks have announced a joint exploration of a Canadian-dollar tokenised deposit system, framed as keeping the country's payments infrastructure competitive and secure. The participants are Bank of Montreal, CIBC, National Bank of Canada, RBC, Scotiabank and TD Bank Group, with other deposit-taking institutions possibly joining at an appropriate time.

The first phase is narrower than the announcement's framing: moving tokenised deposits efficiently between financial institutions. Interbank transfer, not retail payment.

The regulatory groundwork is the part that made this possible, and it happened earlier this month. Canada's Office of the Superintendent of Financial Institutions stated that tokenised deposits are not legally distinct from traditional deposits, adding that the underlying technology of a financial product does not determine its legal nature.

That sentence removes the question that has stalled equivalent projects elsewhere. A tokenised deposit that is legally a deposit sits inside existing capital, insurance and supervisory arrangements. One whose status is unsettled requires every participant to reserve against a possibility nobody can price.

The initiative follows Project Samara, a tokenisation pilot completed in March by the Bank of Canada, Export Development Canada, RBC and TD, which examined blockchain settlement for government bond issuance.

For readers of this desk the distinction from a stablecoin is the whole point. A tokenised deposit is a claim on a regulated bank, inside deposit insurance and supervision, that happens to be recorded on a ledger. It competes with stablecoins by conceding nothing to them.